Let me start by saying I am the PANW tickerguide and last june I put a comparison
of four of the cyber security companies to see if I could understand how PANW is doing
versus the other three smaller, faster growers. The 4 I chose are ones I followed:
PAWN, OKTA, ZS, and CRWD and I looked at sales, earnings, size and price.
I liked the result and so repeated the process for the most recent quarter at the year
end and I thought I would share here on Saul’s board since there is much interest in
the industry, and the other company’s community boards as well. It is a little focused
on Palo Alto, but so be it, they are the big dog here (but not necessarily the best)…
So here is the post…
I realize these four are all different and don’t even do exactly the same functions
but thought it would be an interesting comparison since Palo Alto seems to be
on the cheaper end of things compared to some of the newer, smaller companies.
I recognize that the reason for this is both the growth rate and the perceived
shift from firewalled systems and hardware to cloud based operations. I am in
no way trying to put together any definitive answers but thought the back to
back numbers comparisons might be good. In any event, here is what I had from
last June quarter….
PANW OKTA ZS CRWD Revenues Qtr ($M) 869.4 182.9 110.5 178.1 Billings growth(%) 24% 46% 55% 85% Non-GAAP Net Inc ($/sh) 1.17 -0.17 0.07 0.02 Free Cash Flow (FCF $M) not given 29.8M 9.0M 87M Adj FCF Margin 27% 16% 8% 49% Fiscal 2020 expectations Revenue- Mid ($B) 3.37 0.775 0.423 0.765 % growth 13% 32% 40% 59% Price/Sales 6.5 30.1 31.4 26.3 (Based on this year expectations)
And here is an update for the year end quarters for each……
MOST RECENT QTR
PANW OKTA ZS CRWD Revenues Qtr ($M) 1016.9 234.7 157.0 264.7 Billings growth(yr/yr %) 25% 30% 55% 74% Non-GAAP Net Inc ($/sh) 1.55 0.11 0.10 0.13 Free Cash Flow ($M) 295M(calc) 32.5M 18M 97.4M Adj FCF Margin 29% 14% 11% 37% Fiscal 2021 or 2022 expectations Revenue- Mid ($B) 4.175 1.08 636 1.315 % growth 22% 29% 48% 50% Price/Sales 7.8 25 36 34 Share price used $330 $208 $167 $200 Sales based on this year expectations
Interesting comparison. So much to look at here from both the absolute
values from the recent quarter and a relative comparison to how things
have changed since June.
Clearly the big dog here, almost twice the size of the other three combined.
Also, lower growth rates, and lower enterprise value versus sales. The
obvious question is whether the others will slow down before they get to
PANW’s size. More on this later.
Nothing wrong with OKTA’s numbers but feels like the odd man out here on a
comparison basis. Growth rate shrinking. FCF margins shrinking, second in
size but looks to be passed by CRWD shortly. Only positive is cheaper
enterprise value compared to the other fast growers, but that seems
expected and perhaps that reduction is not done.
So it looks like ZS is hanging in there with growth rates holding up well
but they are also the smallest of the 4. With size, growth rates and FCF
margins lower than CRWD and enterprise value higher, it is hard to see a
reason to own them over CRWD. Having said that, the numbers are all pretty
amazing and if not being compared to the other cyber security companies,
I would probably be drooling.
The continued clear best of breed here based on my comparisons. Growth
rates stand above the others, FCF margins are amazing for a company
growing this fast and significantly above the others (although dropped a
bit since June). The only question in my mind is whether the numbers will
hold up as they grow versus PANW. Which leads me to talk about size.
Clearly Palo Alto is the big dog here with close to 2X of the revenue of
the other 3 combined. Growth percentage is lower but on a much larger
number. The question to asked is whether the other companies will catch up
if the growth rates slow as expected due to the effect of large numbers.
One interesting comparison is looking at the absolute quarterly revenue
increase for each (yr/yr )…
**PANW OKTA ZS CRWD** **Absolute Rev increase (over last June post) 168M 58M 39M 87M** **Rev increase (Yr/Yr) 200M 67M 58M 106M**
I find this interesting because despite the smaller growth rate, the amount
of new sales is actually very strong and somewhat hidden when looking at
percentage increases. I guess the big question is whether PANW can use it’s
position to control the cloud growth. It seems that the upstarts are definitely
catching up but the question is whether they will continue as the get bigger.
It’s not an obvious thought but if this is really and land and expand process
where you want to get the most customer revenue quickly because it is painful
to switch, then PANW could claim to be winning. They basically had more new
revenue in the last than the other three combined.
One thought I have is that the very best products don’t always win, it is easier
to add a product from your current supplier than to switch suppliers overall.
Will PANW make the switch to cloud services before the others can catch up? I
don’t know but since the price/sales ratio is ? of the others while it is
getting more absolute sales gains certainly makes me think.
The last time I posted this I stated that CRWD is clearly the best of the 3
smaller companies and has huge promise to be eventually the biggest, but I
also said that PANW’s size advantage may actually hold up long term. I
think that still applies.
For full disclosure, I own positions in CRWD and OKTA, but this makes me think
I should be at least making a purchase in PANW to cover my bases.
Finally, what an industry! If you don’t own any of these Cyber security stocks,
I would highly recommend getting into one or more of them. The growth continues
PANW Tickerguide. Long CRWD and OKTA for now.