The following is a post I placed on the PANW and other Cyber security boards this morning and thought I would post it here as well….
Here are my quarterly Cloud Cyber security comparisons again. I waited a little this quarter because there has been a lot of discussion about these companies due to the management commentary that went with the quarter releases. This time I will again look at PANW, S, and CRWD as the leaders in this space, but I have added ZS to the list as there seems to be a lot of interest in them.
As usual, for this post I will center on the Cloud Cyber Security space as this is the most exciting in terms of growth and future potential 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.
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 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!)
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. Here is the December ‘22 quarter for all three…
Company ARR ($M) % increase(yr/yr)
S…………………549……………92%.
PANW……… 2,330……….…. 63%
CRWD………2,560……………48%
And the recent March Qtr:
Company ARR ($M) % increase(yr/yr)
S……………….563.6……. ……75%
PANW……… 2,570……………60%
CRWD……….2,730……………42%
And the June / July Qtr results:
Company ARR ($M) % increase(yr/yr)
S……………….612.2……………47%
PANW……… 2,950…………….56%
CRWD……….2,930…………….37%
And the Sept/Oct Qtr report:
Company ARR ($M) % increase(yr/yr)
S……………….664………………43%
PANW……… 3,230……….……53%
CRWD……….3,150…………….35%
And now the year end quarters 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 …………….525………………35%
So there are the numbers, on a year over year basis PANW still doing very well (actually bigger revenues and better and more consistent growth than the rest). On that basis alone, 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. 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 is a good sign in my mind. You want a management that is looking forward, not reacting to the past.
To be fair, although the year over year numbers clearly favor PANW, the growth over the last qtr to qtr does show improvement for CRWD where PANW’s growth of 8.0% is respectable but doesn’t match CRWD’s 9.0%.
In any event, I still believe that the sell off in PANW was overdone (and perhaps the hype with CRWD likewise?). I understand that CRWD’s CEO was crowing about a stolen sale from PANW but that sale had to be in the numbers reported, so the question becomes, how much credit do you give to a management that is talking a good game. In addition, if you are in for the long term, how much penalty do you attribute to a management that has a plan to improve margins even if there is a little short term pain. Especially when it is coming from a management that has consistently produced great results for years.
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 don’t plan on selling anytime soon.
What are your thoughts?
Randy
