Increased demand for next-generation firewalls bodes well for subscription revenues
Previously in this series, we looked at Palo Alto Networks’ (PANW) fiscal 2Q16 results. In calendar 3Q15, the global network security market grew 7% to $2 billion. As you can see in the graph below, the top five players—Juniper Networks (JNPR), Palo Alto Networks, Fortinet (FTNT), Cisco, and Check Point Software Technologies (CHKP)—posted sequential growth in 3Q15.
In its 2Q15 report, IDC (International Data Corporation) stated that PANW has grown its revenues faster than the overall market since entering the top five players in the global security appliance market in the second half of 2013. As telecom companies upgrade and migrate their network securities to next-generation firewalls, PANW is likely to gain market share in the network security segment. That could consequently increase subscription revenue.
Steffan Tomlinson, CFO (chief financial officer) of Palo Alto Networks, stated, “During the quarter we saw broad adoption of all aspects of our Next-Generation Security Platform with particular strength in our subscription services.”
Subscription services helped double-digit growth in deferred revenues and billings
In fiscal 2Q16, Palo Alto Networks’ subscription services, including WildFire and AutoFocus, helped the company’s double-digit deferred revenue and billings growth. WildFire is a subscription service that identifies and blocks targeted unknown malware and viruses. AutoFocus is a cyberthreat intelligence service that provides prioritized, actionable intelligence specific to a network, an industry, and its peers.
Sterling Auty, a Wall Street analyst at JPMorgan, believes the company can generate a 35% revenue CAGR (compound annual growth rate) between 2015 and 2019. Increasing malware attacks have created opportunities for cybersecurity stocks such as PANW to integrate network security and security intelligence.
Investors wanting to gain exposure to the cybersecurity space might consider investing in the PureFunds ISE Cyber Security ETF (HACK).
In the next part of this series, we’ll see why cybersecurity players are losing to Palo Alto Networks.