According to a recent report by Fortune Business Insights, the global cyber security market is projected to grow at 13% CAGR to reach $376.32 billion by 2029 driven by significant adoption of AI and ML capabilities. Security player Palo Alto Networks (NYSE: PANW) is counting on its ability to continue to transform and innovate to expand its market share in the industry.

Palo Alto Network’s Financials

Its fourth quarter revenues grew 27% to $1.6 billion, significantly ahead of the Street’s estimate of $1.174 billion. Net income was $3.3 million or $0.03 per share compared with a loss of $119.3 million or $1.23 per share a year ago. On an adjusted basis, net income was $2.39 per share versus analyst estimate of $1.44 per share.

By segment, Product revenues grew 20.2% to $408.1 million. Subscription and support revenues grew 29.8% to $1.142 billion.

For the fiscal year, Palo Alto’s revenues grew 29% to $5.5 billion. Net loss was $2.71 per share compared with a net loss of $5.18 per share a year ago.

Among other metrics, billings improved 44% to $2.7 billion.

For the first quarter of fiscal 2022, Palo Alto expects revenues of $1.535-$1.555 billion and an EPS of $2.03-$2.06. For the year, Palo Alto expects revenues between $6.85-$6.90 billion and an EPS of $9.40-$9.50. The market was looking for revenues of $1.53 billion and EPS of $2.04 for the quarter and revenues of $6.73 billion with an EPS of $9.62 for the year. Palo Alto expects full-year GAAP profitability in fiscal 2023 despite the inflationary pressures that are expected to persist in the coming year.

Palo Alto Network’s Growth Focus

Palo Alto is seeing a few trends within the security market that are driving its long-term business strategy. First, it saw longer-duration deals as customers are increasingly getting more confident in their ability to deliver. The company believes that as it continues to provide constant best-of-breed products and ensure that these products are integrated to deliver better security outcomes, their customers will continue to consolidate with them.

Second, while it saw some isolated instances of customers extending the life of hardware potentially driven by macro forces, the vast majority of its transformational customers continue on their investments despite the expected short-term macro impacts. Security spending is tied into the customers’ desires to move to the cloud, drive more direct relationships with their customers, modernize their IT infrastructure, and drive efficiencies while adapting to a new way of working. Despite the macro conditions, it is seeing customers who are continuing with these efforts. The increasing awareness about the need for improved cyber security is driving growth for Palo Alto.

Over the past few years, Palo Alto has reinvented the firewall market and captured the market leadership position in 11 cybersecurity categories across its three platforms. Next-generation security contributed more than 38% of its billings. Within network security, it has one of the most comprehensive solutions across three form factors that share a common architecture and also offer a suite of market-leading security subscriptions. It has built, assembled, and integrated capabilities in nine modules that make up Prisma Cloud, which has become the leader in cloud-native security. It has three anchor products in Cortex and with its new XSIAM product, it is showing promise in the revolutionized security operations. This can be witnessed in its customer metrics. The number of customers that spend over $1 million annually with the company are now over 1,200 and the number of Global 2000 customers that have purchased products in all three of its platforms is now 50%.

Palo Alto’s transformation strategy over the past four years has focused on developing a multi-platform, subscription-based business model. Its initiatives have helped increase its subscription and support mix primarily driven by the growth of its next-generation security business. Subscription support now exceeds 80% of its billings, resulting in greater predictability of revenues. It believes that there is more to come yet as it estimates its large addressable market to grow 14% annually. Despite its growth, Palo Alto still controls a modest 6% of its TAM, and it plans to continue to invest in its product and platform development to expand this market presence. It plans to continue to leverage AI and automation with its Cortex products and XSIAM products specifically to address this opportunity.

Palo Alto’s stock is trading at $559.68 with a market capitalization of $55.8 billion. It was trading at a 52-week high of $640.90 in April and a 52-week low of $421.55 in August last year.

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