Shares of cybersecurity purveyor Palo Alto Networks have soared — rising at an average annual rate of 28% since the company’s July 2012 initial public offering and rising 35% so far in 2024.
Will the stock continue to rise ahead of a stock split this Friday? The answer could depend on whether Palo Alto prevails over rivals in an emerging growth sector of the cybersecurity market.
Palo Alto’s business is doing well — the company reported expectations-beating results for its fiscal 2025 first quarter, raised full year guidance, and announced a 2-for-1 stock split occurring later this month, according to Investopedia.
But Palo Alto faces rivals such as privately-held Cato Networks — a pioneer in secure access service edge — a technology that defends corporate networks by monitoring employee computers and mobile devices, according to Forbes.
Cato says it is winning 70% of competitive bids against Palo Alto, according to my November 18 interview with Cato CEO Shlomo Kramer. A Palo Alto spokesperson declined two requests for comment on Cato’s win rate claim.
Meanwhile, Gartner’s Magic Quadrant has dubbed Palo Alto and Cato as leaders in the SASE market, according to CRN.
Palo Alto’s strategy of acquiring point products was flawed because customers found them disjointed, according to rivals Wiz and Cato.
Yet, Palo Alto told me platformization — a strategy to boost sales by consolidating and bundling services — remedies that problem, according to my September Forbes post. As I describe below, Kramer begs to differ.
Despite the intense competition, the nascent growth of SASE means Palo Alto stock has the potential to keep rising, according to analysts.
Moreover, despite Cato’s high win rate against Palo Alto, SASE appears to be a game in which both companies could prosper.
Palo Alto Networks Strong Performance And Prospects
On November 20, Palo Alto Networks reported beat expectations, raised guidance, and announced a 2-for-1 stock split effective December 13, Investopedia reported.
Here are the highlights:
- Fiscal 2025 Q1 revenue: $2.14 billion — up 13.8% from the year before and $20 million more than the Visible Alpha consensus estimate.
- Fiscal 2025 Q1 profit Profit: $350.7 million — up more than 80% and $78.6 million more than Wall Street estimates, according to Investopedia
- Fiscal 2025 revenue outlook: $9.145 billion — the midpoint of a range between $9.12 billion to $9.17 billion — $20 million more than the company’s previous estimate, noted Investopedia.
- Fiscal 2025 revenue adjusted earnings per share outlook (EPS): $6.325 — the midpoint of a range between $6.26 and $6.39 — eight cents more than the midpoint of the company’s previous estimate, according to Investopedia.
Customers realize “platformization is the game changer that will solve security and enable better AI outcomes,” Palo Alto’s CEO Nikesh Arora told investors, according to Investopedia.
Cato is skeptical of Arora’s claim. “Converting a portfolio company into a platform company is about as easy as unscrambling an omelet,” Kramer said in a July company release.
“Security is a data problem. A platform makes high-quality, contextualized data available in real-time for protection and stores that data in a single data lake for detection. You cannot get that kind of high-quality data from a portfolio company, no matter how pretty the management interface,” he added.
The Burgeoning SASE Market Opportunity
SASE is a large market growing at a 30% average annual rate to $25 billion in 2027, according to Gartner.
SASE demand is surging because organizations are seeking “a unified technology platform from a single vendor” to give distributed teams remote access to their computing resources, according to a Gartner report featured by CRN.
Palo Alto and Cato were ranked one and two respectively in Gartner’s July 2024 single-vendor SASE Magic Quadrant.
Palo Alto came out on top for both vision and execution. How so? While customers said the company’s services were more expensive than rivals’, Palo Alto’s posirives include “strong security and networking features, delivered via a unified platform,” great financial viability and a large customer base, reported CRN.
Cato’s number two ranking was due to a mixture of positives and opportunities for improvement. Gartner praised Cato’s role as an industry pioneer with planned innovations that will “continue to shape the market.” On the other hand, customers expressed frustration with Cato’s pricing model and considered some of its security capabilities — such as SaaS control and firewalling for on-premises environments — “limited,” CRN wrote.
Cato Networks Claims Competitive Superiority
Cato is optimistic about its performance and prospects. “We announced $200 million in annual recurring revenue for 2024 — about twice the 2023 amount — and we have 2,500 customers,” Kramer told me.
Cato envisions SASE taking over much of cybersecurity. “In five to 10 years SASE will replace the vast majority. We have Fortune 500 customers such as Carlsberg which uses our product in 260 locations and the company is enjoying the benefit of SASE for its 40,000 employees.”
Cato has added to its security services — announcing Cato IoT/OT Security on December 10. This service will help companies manage and secure internet of things and operational technology devices, reported The Fast Mode.
Cato says it wins when competing against Palo Alto. “Once we get to a proof of concept against Palo Alto, we have a 70% win rate. The reason is customers’ immediate reaction is Cato enables them to get so much done with so little investment. The time to value is quick,” he added.
Palo Alto says its Prisma SASE solution meets customer needs effectively. “Customers are looking for a single vendor to provide consistent and comprehensive security for their modern workplace to protect all apps, users, devices and data in their network, regardless of location,” according to a December 4 email from a spokesperson.
“They are looking for a comprehensive SASE solution that offers best-in-class security, exceptional user experiences, and simplified management & operations. Our Prisma SD-WAN reduces trouble tickets by up to 99%,” noted the email.
One company that switched from a SASE “legacy vendor” to Cato Networks lauds the lower costs and praises the company’s new IoT/OT security service. “Since we’ve switched from a legacy vendor to Cato Networks, one of the biggest benefits that we’ve seen is reduced costs. We believe enterprises can benefit from cost efficiencies with Cato IoT/OT Security,” said Oregon Tool Global IT Manager — Infrastructure and Security, Chris Simons, The Fast Mode reported.
Will Palo Alto Stock Keep Rising?
Palo Alto stock has upside. The average price target for Palo Alto networks from of 36 Wall Street analysts is $424.15 — representing 7.4% upside, according to TipRanks.
Wedbush sees considerable opportunity because the company’s “efforts on platformization are just beginning to hit its stride as it generates a more stable pipeline of platformization deals with cloud penetration still acting as a major driver,” reported Investopedia.
Palo Alto will benefit from increased customer spending. “We believe the firm stands to materially benefit from secular tailwinds across its three key end markets as cloud migrations, shift to zero-trust security, and increased automation in cybersecurity,” noted Morningstar analyst Malik Ahmed Khan.
Meanwhile, Cato could go public next year if market conditions are favorable, Kramer told Fierce Network.