Nikesh Arora wants to set the record straight.
The chairman and CEO of cybersecurity company Palo Alto Networks (PANW) took time during the group’s earnings call to address the recent large-scale outages in the industry.
The CrowdStrike of July 19 (CRWD) The crash occurred when an update to the cybersecurity company’s threat monitoring software caused what is believed to be the largest outage in information technology history.
The outage affected banks, hotels, hospitals and government facilities worldwide and led to the cancellation of thousands of flights.
“Let me reiterate: Our product uses an approach where we use a 1 to 3 percent wide test group to ensure there are no issues, and then we release incremental content updates,” Arora told analysts.
“We have additional controls in place to allow customers to manage and control the update process. The recent outage has caused a number of customers to re-evaluate their options.”
Arora said he appreciated the way CrowdStrike handled the incident.
“Customers ask us, ‘You have the same product? How do you use it?’ We have a fundamentally different way of doing content updates and have done so for a very long time. So we were able to articulate that.”
He added that customers are ready to consider Palo Alto in the Extended Detection and Response (XDR) space.
Nikesh Arora, CEO of Palo Alto Networks
Ramin Talaie/Getty Images
Palo Alto Networks CEO: AI is being used to expand attacks
“It’s no longer a no-brainer for another place in the market, which is helpful for us and our sales team,” he said.
Arora noted that companies are becoming increasingly reliant on their IT systems and “nothing makes this clearer than a significant outage or security breach.”
“We see a wide range of security breaches, but ransomware remains a significant threat that links many of these cases together,” he said.
“The relatively new phenomenon of public extortion through ransomware is becoming increasingly challenging as companies must deal with the pressure of public disclosure before they have time for early assessment.”
Cybercriminals are constantly changing their tactics. A report by cloud computing service provider Fastly found that 91% of all cyberattacks targeted multiple organizations that used mass scanning to uncover and exploit vulnerabilities. That’s up from 69% in 2023.
“AI adoption is moving at a rapid pace, faster than I’ve seen any other new technology, frankly,” Arora said. “However, it follows a typical pattern. Innovation is driving the speed of adoption, while security may play a secondary role.”
“At the same time, adversaries are leveraging the power of AI to expand their attacks, target organizations more precisely, and scale their malicious activities beyond the capabilities of human-only defenses,” he added.
This environment, Arora added, coupled with an increasingly sophisticated threat landscape and a complex set of point products that are not well integrated or even coordinated, is leading to a growing need for platformization, an approach Palo Alto introduced earlier this year.
The plan negatively impacted the company’s shares when it was announced in the February earnings report, as Palo Alto Networks reduced its guidance.
“I know there was a lot of consternation about our platformization strategy six months ago,” he said. “I just want to say: I wish we had taken this path earlier. The interest and activity around it has certainly solidified and is promising.”
Palo Alto reported fourth-quarter earnings of $1.51 per share, up 5% from a year earlier and beating analysts’ forecasts of $1.41 per share.
Total revenue was $2.2 billion, up 12% year over year and beating Wall Street’s forecast of $2.16 billion in revenue.
For the current quarter, Palo Alto forecast adjusted earnings per share of $1.48, beating analysts’ expectations of $1.42. Revenue was between $2.1 billion and $2.13 billion, while Wall Street had expected $2.1 billion.
Annual revenue for fiscal year 2025 was forecast at $9.1 billion to $9.15 billion, roughly in line with consensus estimates.
Analyst speaks of “solid forecast” from Palo Alto Network
The company’s board of directors also approved an additional $500 million in share buybacks, bringing the total authorization to $1 billion.
Palo Alto shares were up nearly 8% at last check and are up 76% year over year.
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Bruce Kamich of TheStreet Pro said traders “who are long PANW should continue to hold those positions.”
Several analysts have adjusted their price targets for Palo Alto Networks following the release of the earnings report.
Wedbush analyst Dan Ives raised his price target for Palo Alto Networks from $375 to $400, but maintained an “outperform” rating.
“We continue to believe that the platform approach to cybersecurity is the right long-term move for PANW and that the company will ultimately emerge from this transition with a stronger market position. Last night’s strong quarter and outlook are a critical step forward for Nikesh & Co.,” Ives said in a research note to investors.
The analyst added that Palo Alto Networks beat consensus estimates on revenue and earnings and provided solid guidance for fiscal 2025 as the company expands its next-generation security business while experiencing strong execution of its platform strategy.
The company also pointed to the strength of its artificial intelligence products, citing annual recurring revenue of around $200 million, Ives said. That’s about four times the year-ago figure. That’s due to the recent launch of its AI suite, which includes Access, SPM and Runtime, and continues to gain scale, while XSIAM is growing rapidly, recording $500 million in orders this quarter.
BMO Capital raised its price target for Palo Alto Networks from $334 to $390 and reiterated its “outperform” rating for the stock.
The investment firm said it was not surprised that Palo Alto no longer provides guidance on its billings and viewed the free cash flow forecast “as a source of relief.”
The metrics reported for the July quarter were solid across the board, as evidenced by 20% year-over-year growth in remaining performance obligations, invoice collections above the high end of the forecast range and operating margins about 1 percentage point above Wall Street estimates, according to BMO Capital. (RPO is the revenue a company expects to receive from signed contracts but has not yet received.)
Jefferies raised its price target for Palo Alto Networks from $365 to $400 and maintained a buy rating on the stock.
The company reported solid fourth-quarter results, with revenue increasing 11% year-over-year versus the consensus estimate of 9%, the company said.
Jefferies said that while the changed metrics cloud its forecasts, the company’s long-term performance remains on track. Palo Alto continues to gain market share and its free cash flow margin is better than feared, the company said.
