Palo Alto Networks : Platform Approach Resonating With Clients Across Network, Cloud, and Automation

Palo Alto Networks became a leading cybersecurity provider through its next-generation firewall appliance altering the requirements of this essential piece of networking security. The firm’s portfolio has expanded outside of network security into areas such as cloud protection and automated response. Looking ahead, we think Palo Alto’s nascent threat-prevention solutions will provide robust growth along with a significantly improved margin profile.

The complexity of an entity’s threat management increases as the quantity of data and traffic being generated off-premises grows. Network security can be attacked from various angles, and we posit that security will remain a top concern for all enterprises and governments, which bodes well for Palo Alto and its peers. Security point solutions were traditionally purchased to combat the latest threats, and IT teams had to manage various vendors’ products simultaneously, which leads us to believe that IT teams are clamoring for security consolidation to manage disparate solutions. Core to Palo Alto’s technology is its security operating platform, which provides centralized security management. We believe the ability to add technologies via subscriptions in the Palo Alto framework can alleviate complications by providing more holistic security, which can generate sustainable demand.

We expect that Palo Alto will continue to outpace its security peers by focusing on providing solutions in areas like cloud security and automation. Palo Alto’s concerted efforts into machine learning, analytics, and automated responses could make its products indispensable within customer networks. Although we expect Palo Alto to remain acquisitive and dedicated to organic innovation, we believe significant operating leverage will be gained throughout the coming decade as recurring subscription and support revenue streams flow from its expansive customer base.

Adding on modules to Palo Alto’s security platform could win greenfield opportunities and increase spending from existing customers.

Palo Alto could showcase great operating margin leverage as it moves from brand creation into a perennial cybersecurity leader. Winning bids should be less costly as the incumbent, and we think Palo Alto is typically on the short list of potential vendors.

The company is segueing into high-growth areas to supplement its firewall leadership. Analytics and machine learning capabilities could separate Palo Alto’s offerings.

The large public cloud vendors are developing security suites that may be preferred over those of a pure-play security supplier. If these companies offer products outside their data centers, Palo Alto may be stuck with niche applications and on-premises products.

Palo Alto competitors are also offering consolidated platforms, which could make displacing competitors more challenging.

Cloud and software-based startups could disrupt Palo Alto’s high-growth plans. The market for acquiring bolt-on firms could be hotly contested, and Palo Alto could miss out on the next big technology.

 (Source: Morningstar)

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