Cyber Security Comparison

So now that Sentinel’s earnings are out, I thought I would do an update on my quarterly Cloud Cyber security comparisons. For this, will look at PANW, S, and CRWD as the leaders in this space. As I have said before, PANW can sometimes tend to get overlooked in this space because of the large Firewalled cyber security business they have (that is doing very nicely by the way). But for this post I will center on the Cloud space as this is the most exciting in terms of growth and is largely a SAAS type business which has a lot of aspects that can be extremely beneficial to a stock investor, ie repeat business, stickiness to the customer, extremely high gross margins, etc.

With that out of the way, let’s compare just 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.

Company ARR ($M) % increase(yr/yr)
PANW……… 2,330…………. 63%

Now it seems like most of the conversation in this industry is either around Sentinel for its high growth or CRWD for its size. But not much around PANW. But it seems that PANW has the best of both worlds.

A couple of quarters ago, it was said that CRW was bigger with equal to or greater growth, but with the most recent results, PANW is both maintaining its growth (with CRWD dropping off, albeit good growth) and closing in on size. In fact with the numbers above, it is hard to argue that CRWD is meaningfully bigger.

As for S, clearly the growth is still outstanding, although it is dropping some, but it is also 1/4 the size of PANW. The question remains as to whether they can maintain the same growth as it gets substantially bigger.

Now let’s look at Free cash flow, S is still negative which is not surprising due to thier size. CRWD is actually starting to turn this around showing $209 M in free cash flow last quarter, but PANW SHOWED $685M this past quarter, more 3 times that of CRWD. To me this means they have lots of band width to keep expanding their offerings and grow their business. That translates into more than $2.7B a year in free cash flow to improve their business, buy back stock or whatever else they decide to do. A huge advantage.

Now to be fair, part of the free cash flow advantage is because of their sister Firewalled Cyber security business. But really, that in inself is an advantage. They have built in existing firewall customers to add cloud services without needing new customers and as the entire industry matures, I have to believe that having both sides of the business helps to retain customers as you wouldn’t necessarily want to use two different companies for different aspects of the same business need.

In any event, it seems to me that PANW may be winning this race for customers in a land and expand market and they are becoming my favorite in this space.

To be clear, I do own all three and think it is a vital industry that is likely to keep growing in the future and there may be more than one winner. Hence, me keeping all three.

What are your thoughts?
PANW Tickerguide and long S,CRWD, and PANW.


A few interesting articles from Seeking Alpha comparing the players here…
Palo Alto absolutely shouldn’t be written off and Fortinet shouldn’t be forgotten but Microsoft is also out there and a massive player in the space.