They are down almost 10% after hours. Looking at recent earnings in its cohort (CHKP, FTNT, CSCO), outside of ZS - CHKP was inline, FTNT had a beat/raise quarter, and CSCO disappointed overall but their security segment did $815M compared to a $723M consensus (https://www.cnbc.com/2019/11/13/cisco-csco-earnings-q1-2020…).
I was critical of ZS here recently, but regardless of my opinion it will be interesting to see if PANW guidance was really because of misaligned sales incentives or competition. If it is competition, it will be interesting who else benefits. ZS reports next Tuesday.
ZS was brought by an analyst on the last question. Unlike the tone at the analyst meeting, management refused to answer the direct question and skirted it w out once mentioning Zscaler although the analyst only specifically mentioned Zscaler.
Palo had multiple issues this Q, but it was their hardware appliances that was their primary disappointment. Zscaler is not big enough yet to really dent Palo though, Palo has 1000 Prism customers (I suspect all or most upsells f existing customers) and Zscaler by now has more than 4000.
All that Palo Alto ended up stating in regard to the Zscaler question is that it depends on what architecture and transformation the customer is making as to what vendor they go with.
Exactly as we have described it. Architecture matters. Do you want to extend your existing hub and apple network or do you want to move to an all cloud network.
Can’t say it gives much clue about how Zscaler will do this Q other than analysts still only mention Zscaler when talking cloud and Zscaler has far more cloud customers than Palo despite their enormous customer base.
Palo’s problems may relate to a general slow down as well on the market as a whole. We will find out Dec 3.
Btw Palo’s new CEO has little experience in the security market. I’ve never heard a CEO mention some ignorance of the market even once, much less multiple times for whatever that is worth.
In the end Palo’s hardware sales missed by quite a bit in relations to their 25% growth rate goal. Was it misaligned sales incentives or market factors? Palo could not really tell us. They are relying on the hardware upgrade cycle however.
Whilst Palo Alto is going through a transition and is working off a large revenue base, I recently felt that its growth rate (particularly organic) was falling too low well down from the 30% level of late. I sold and re-invested most of proceeds into ZS (and some into Crowdstrike). Palo Alto had been a 200% gainer for me.
This week I sold out of CyberArk which whilst still a reasonable performer was offering me a chance to switch horses mid race and reinvest which I did - mostly into Crowdstrike. Again as per Palo Alto, (and Imperva, Qualys and CheckPoint before that), I was cashing in a 180%+ gain from a cyber security play to re-invest into a younger faster growing holding.
I’m not worried specifically about Palo Alto as far as ZS goes (which doesn’t have a business model transition to worry about and is growing in multiples higher than Palo Alto).
ZS was brought by an analyst on the last question. Unlike the tone at the analyst meeting, management refused to answer the direct question and skirted it w out once mentioning Zscaler although the analyst only specifically mentioned Zscaler.
I generally find analyzing tone and language in these to be overrated. Numbers speak for themselves. Cocky CEOs end up in trouble, and talking about a competitor in your own call is validating them.
The architecture question has a bit more nuance than “do you want to be all cloud”. But a narrative is a narrative and ZS is good at that.
CEOs are overrated and given too much credit, as a rule. I might point to the former FireEye CEO for an example. The number of real difference making CEOs is small, and the good ones are conscious of their blind spots and effective delegators.
It’s worth noting that CSCO’s Security group includes Umbrella, which is a ZS competitor in some ways. But I expect ZS will beat, because the BAML upgrade was so squishy and unspecific that it seemed like a way to telegraph competitive win rumors. Time will tell, otherwise it’s all just speculating.