A Leader in the Cybersecurity Industry with Award Winning Solutions and Robust Growth Prospects

PANW now has 24,000 customers with a renewal rate of over 90%

Revenue was up 55% in its recent quarter, with continued subscription growth

Shares are up 219% since the company’s IPO in July 2012

Palo Alto Networks (NYSE: PANW) was founded in 2005 and offers a diversified portfolio of leading network and communication security solutions to enterprises and government organizations. PANW develops firewall, cloud and centralized management solutions to solve malware, intrusion detection and other cybersecurity threats. The company typically earns revenue through subscription services but its solutions can also be purchased on a one-time basis. The company has a diversified customer base in industries such as health care, financial services, government, media, education and technology. PANW is constantly developing new solutions to mitigate the risk from stepped-up cyber-attacks.

Shares up 219% since 2012 IPO

Palo Alto Networks’ shares traded at $169.58 per share (as of market close on 5/29/2015), giving the company a market capitalization of $14.19 billion. Shares are only marginally below the company’s 52-week high of $169.84 (set on 5/28/2015) and are well above their 50-day moving average of $152.48 and 200-day moving average of $134.83. Shares are up about 219% since the company’s IPO in July 2012 and up about 38% year-to-date.

Fund manager Oppenheimer has an Outperform rating on Palo Alto Networks with a share price target of $175 on channel expansion, customer penetration and subscription growth. Pacific Crest Securities increased the company’s price target from $160 to $180 citing subscription growth. Piper Jaffray (PJC) increased the company’s price target from $165 to $182 citing significant revenue growth. Analysts are confident Palo Alto Networks’ recent momentum will continue and push the company’s stock price up over the next 12 months.

Palo Alto Networks does not currently pay dividends and does not foresee doing so in the future.

Next-Generation Cybersecurity Products for Small, Medium and Large Local and Global Enterprises

Palo Alto Networks offers 11 next-generation firewall configurations with varying performance capabilities to meet the needs of enterprise networks of various sizes. The company also offers GlobalProject, a mobile security solution, WildFire and URL Filtering threat prevention solutions and its Traps advanced endpoint protection solution. PANW aims to provide enterprise security against known and unknown cyber threats for any device on any network.

Cutting Edge Solutions Give Palo Alto Networks a Leading Advantage in Cybersecurity

Palo Alto Networks launched AutoFocus, a new cyber threat intelligence solution which helps companies decipher security data and alerts to identify the main sources of targeted attacks. The software uses actionable intelligence from billions of file-analysis artifacts to identify and thwart potential cyber-attacks. AutoFocus allows enterprises to rate attacks and prioritize immediate and appropriate action to protect critical assets. The cybersecurity solution was developed by Palo Alto Networks’ Unit 42 threat intelligence team which consists of researchers and industry experts that continuously analyze data from internal and external sources to identify the latest cyber threats.


Growing Customer Base and Market Share

The global network and endpoint security market is projected to grow from $14.9 billion in 2014 to $19.5 billion in 2018. As a cybersecurity leader, Palo Alto Networks has grown its customer base from 16,000 in Q2 2014 to 24,000 in Q3 2015, growth of 50% in just five quarters that has helped the company increase billings by 56% year-over-year.


Acquisitions Help Improve Solution Offerings

Palo Alto Networks recently announced its acquisition of cybersecurity startup, CirroSecure, for an undisclosed amount. CirroSecure specializes in Software as a Service (SaaS) technology which management plans to leverage to improve the quality of its security solutions to SaaS applications where users routinely enter their most sensitive information. CirroSecure’s technology offers a robust layer of protection to prevent violations. Over the last year, Palo Alto Networks also acquired advanced malware cybersecurity startup, Morta Security, and remote cyber-attack prevention company, Cyvera.

Expanded Partnership with VMware Lends Additional Credibility

Palo Alto Networks and cloud software and virtualization leader, VMware (VMW), expanded their strategic partnership to integrate their respective enterprise technologies to develop state-of-the-art mobile security solutions. Palo Alto Networks will combine its WildFire and GlobalProtect solutions with VMware’s Airwatch solution. The new solutions will address malware detection, network protection and VPN security for mobile devices.

Palo Alto Networks also has strategic partnerships with network solutions provider Aruba Networks (ARUN), virtual software company Citrix Systems Inc. (CTXS) and data analysis company Splunk (SPLK).

Award Winning Cybersecurity Product Portfolio

Palo Alto Networks was recognized as a Magic Quadrant leader for Enterprise Network Firewalls by IT research company Gartner Inc. (IT). This marks the fourth time Palo Alto Networks has received this recognition.


The company also received a superior security score from NSS Labs after competing in the Next-Generation Intrusion Prevention System test. After several evaluations of multiple exploits and evasion techniques, Palo Alto Networks achieved a 98.8% overall block rate, earning the company the highest security efficacy rating.

Management Team Well-Versed in Information Technology

Mark McLaughlin has served as President and Chief Executive Officer since August 2011 and was named Chairman of the company’s Board of Directors in 2012. Prior to joining the company, McLaughlin held positions with Internet services company Verisign (VRSN) and electronic transaction processing company Signio.

Steffan Tomlinson is the Chief Financial Officer, overseeing all finance, accounting and manufacturing matters for the company. Tomlinson previously served as CFO of Aruba Networks and WAN technology company Peribit Networks.

Nir Zuk is Chief Technology Officer and cofounder of the company, and brings several years of network security experience. Zuk earlier worked for IT security company, NetScreen Technologies, and IPS technology company, OneSecure, as CTO.

Q3 2015 Revenues up 55% to $234.2 Million

For the three months ended April 30, 2015, Palo Alto Networks had total revenue of $234.2 million (up 55%), total gross profit of $169.8 million (up 53%), operating loss of $36.7 million (down 75% from a deeper loss in the year-ago quarter) and a net loss of $45.9 million, or $0.56 per share, down 69% from a loss of $146.6 million. Product revenue increased 44% and services revenue increased 69%. Deferred revenue grew 64% to $603.9 million. The operating loss reflected a sharp increase in R&D, sales and marketing, and interest expenses.


As of April 30, 2015, Palo Alto Networks had $454.1 million in cash and cash equivalents, $944 million in total current liabilities and $454.3 million in total stockholders’ equity.

Management expects non-GAAP earnings of $0.24 – $0.25 on total revenue of $252 – $256 million for the fourth quarter 2015.

Summary

Palo Alto Networks is strongly positioned to grow revenue in a business environment that feels vulnerable and exposed to network and mobile hackers. While the company offers no dividends (typical of tech companies), Wall Street does recognize the tremendous growth potential and superior competitive positioning of its solutions, and has driven shares up to new highs. As a result, investors might do well to hold off on imminent purchases and wait to buy on dips as shares could rise strongly once the company stabilizes G&A expenses.

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