I posted this on the premium boards a few days ago and it always seems to draw interest here so…. Here you go!
So I have gotten some responses to my quarterly update recently, but that was last quarters update so I figured I better get the fall quarter results out! I am once again looking at PANW, S, CRWD, and ZS (which was added a few quarters ago).
As usual, I will center on the Cloud Cyber Security space as this is the most exciting in terms of growth and future potential and is the easiest to compare across the companies. Also, as usual PANW has a large traditional firewalled business that is separated out for this post’s purposes. Clearly this assumption and how to account for it is open to debate and disagreement, but I just do the best I can. So be it.
I will also point out that there are other interesting companies that I could include but because I don’t want to make this too confusing nor compare apples to oranges, so I am not including Fortinent, Okta or others that it could be argued should be included. If the interest is there I can (or someone can offer to augment this with a follow on post!)
In the past I have said I would take a shot at looking at separating out the firewall portion of PANW in a follow on post. But when I have tried to do so, it became quite complicated as they don’t do a good job of separating out the revenues, etc for that business. I may still try but in a recent interview on Cramer, PANW’s CEO said that the traditional firewalled business continues to grow at 5-7%. It seems like that comment would be more accurate than anything I can do, so I think I will leave it at that for now.
With that out of the way, I first will repeat the last four quarter’s comparison of a couple of key aspects, cloud ARR (Annual Recurring Revenue) and said growth rate. The first is important to show overall size of the cloud portion of the business and the second to show how it is growing. Then I will share the most recent quarters results.
Last Year’s Sept/Oct Qtr report:
Company ARR ($M) % increase(yr/yr)
S……………….664………………43%
PANW……… 3,230……….……53%
CRWD……….3,150…………….35%
The year end 2023 quarter for each and adding ZS into the mix.
Company ARR ($M) % increase(yr/yr)
S……………….734………………37%
PANW……… 3,490…………….50%
CRWD……….3,440…………….34%
ZS …………….2,100………….…35%
March 2024 quarter results
Company ARR ($M) % increase(yr/yr)
S………….…….762………………35%
PANW……… 3,790…………….47%
CRWD……….3,650…………….33%
ZS …………….2,212………….…32%
June/July 2024 results
Company ARR ($M) % increase(yr/yr)
S………….…….806…………….32%
PANW……… 4,220………….….43%
CRWD……….3,860…………….32%
ZS …………….2,372………….…30%
Finally the Sept/Oct 2024 results
Company ARR ($M) % increase(yr/yr)
S………….…….860………………29%
PANW……… 4,500………….….40%
CRWD……….4,020………………27%
ZS …………….2,512………….….26%
Note: For ZS, I estimated ARR by multiplying revenues by 4 to get an annual number. Not sure if that is perfectly correct but the best I can think to do. It’s funny because they are the only one who doesn’t report ARR right up front. If someone sees it and it’s worth correcting, let me know.
Overall, what is really amazing is the total consistency of the industry. The growth rates are high but dropping for all 4 but only a few percent for each quarter which totally makes sense as the rule of large numbers takes over and more and more companies convert to the cloud and data centers. Looking at PANW specifically the last 5 quarters year over year growth rates were: 53 50 47 43 and 40. Amazingly consistent.
Similar to last quarter, I will say it seems like an interesting decision by PANW to announce changes in their sales efforts to offer freemium packages to entice customers to buy multiple products a couple quarters ago. As explained by PANW, the margins for customers with multiple products are much better. The fact that they are taking these actions when their results seem to be fine (and incredibly consistent!) is a good sign in my mind. You want a management that is looking forward, not reacting to the past. And now I can say, looking at the results (at least one qtr in) I hasn’t seemed to hurt the cloud based sales at all where they seem to be holding their own (at least!!) against the competition in terms of numbers. I guess we wait a couple more quarters (again) to see further.
In the past I have said I would take a shot at looking at separating out the firewall portion of PANW in a follow on post. But when I have tried to do so, it became quite complicated as they don’t do a good job of separating out the revenues, etc for that business. I may still try but in a recent interview on Cramer, PANW’s CEO said that the traditional firewalled business continues to grow at 5-7%. It seems like that comment would be more accurate than anything I can do, so I think I will leave it at that for now.
As far as economics of the company it is clear that they haven’t gotten any worse at all. Total revenue grew 14%, non-GAAP earnings grew a crazy 77% (0.99 vs .56) and management predicted 2025 free cash flow margins 37-38%.
So there you have it. The consistent growth is certainly being recognized in the marketplace. PANW announces a change of direction and see a pretty good hit but has come all the way back and then some over the last couple quarters. CRWD has a major glitch which causes a massive problem for a few days and takes a big hit in stock price that turns out to be temporary as the stock price has come back and then some as well.
As for PANW, if you are in for the long term, it all seems good as they continue to produce great results and appears to be winning the cloud business which is a land and expand industry at the moment.
Finally, this is a little bit of an embarrassment of riches. All of these companies are in an industry that is doing great and seems to have a bright future because it is hard for me to imagine a world where this doesn’t continue to grow in importance over time.
Me, I own shares in both CRWD and PANW and in fact added to CRWD RECENTLY and don’t plan on selling anytime soon.
What are your thoughts?
Randy
PANW Tickerguide and long PANW and CRWD