Palo Alto Networks' chief executive expects the move toward "platformization" in the cybersecurity market to drive consolidation. Shares of Palo Alto stock have climbed 16% in 2024 as its strategy to cross-sell cloud security products gains momentum with enterprise customers.
On Monday, Palo Alto Chief Executive Nikesh Arora touted its platformization strategy during a Goldman Sachs Communacopia conference.
"I think since we started talking about it (platformization), every other player in the industry has now said they also have a platform which is good, which means you're in the right direction," Arora said, according to a FactSet transcript. "So I think you'll see some consolidation. If you look around, there's a lot of $3 billion to $7 billion market cap cybersecurity companies for sale, because they figured out it's very hard to break through the sound barrier."
The Palo Alto CEO didn't mention specific companies up for sale. Palo Alto's main rivals – CrowdStrike Holdings, Fortinet and Zscaler – have market caps ranging from $24 billion to $60 billion.
On the stock market today, Palo Alto stock dipped a fraction to 342.42.
In June 2018, Palo Alto brought in Arora, a former chief business officer at Alphabet's Google, as its CEO. Since his arrival, Palo Alto stock has climbed over 400%.
Palo Alto Stock: Platformization
Palo Alto's platformization strategy bundles more products in discounted packages.
At the Goldman Sachs conference, Arora said needed investments in artificial intelligence and platformization will pressure many smaller cybersecurity companies.
"I do think that we're coming to a place where $300 million to $700 million ARR (annual recurring revenue) cybersecurity businesses are going to be in the graveyard," he said.
Arora added that Palo Alto is working more closely with computer system integrators such as Accenture and IBM.
Also part of the Palo Alto strategy is giving new customers free products and services in trials on the expectation they will sign three- to five-year contracts. The consolidation strategy has pressured billings because of customer perks.
But analysts expect Palo Alto to gain market share in the long run.
Palo Alto Stock: Firewall Market
In its core business, Palo Alto sells firewall network appliances. Sales have slowed. Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps.
However, Palo Alto has built a broad cloud-based security platform through acquisitions. Palo Alto Networks has expanded into endpoint security and other areas. Endpoint tools detect malware on laptops, mobile phones and other devices that access corporate networks.
Palo Alto's cloud-based security operations center detects and responds to computer hacking incidents.
Palo Alto stock holds a Relative Strength Rating of 86 out of a best possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
