Palo Alto Networks to become 'supermarket' for security needs

Shares of Palo Alto Networks (PANW) are sinking Tuesday morning after the company issued a downbeat forecast for the current period, renewing concern about a slowdown in the cybersecurity sector. TD Cowen Managing Director and Senior Analyst Shaul Eyal joins Morning Brief to discuss Palo Alto's "platformization" strategy for driving demand growth.

Eyal classifies platformization as a "topic de jour," explaining that the strategy involves consolidating many security vendors. Palo Alto is trying to separate itself from the pack by introducing three new platforms, a strategy that is "swinging in full mode ahead," Eyal says.

Palo Alto's efforts to consolidate its solutions across product categories may transform it into the "supermarket for all of the corporate security needs."

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This article was written by Gabriel Roy.

Video transcript

Let's get to some trending tickers here straight from the Yahoo Finance sites right now, shares of Palo Alto Networks, they're sinking this morning.

The company's latest earnings results failing to impress investors, company giving a downbeat forecast for the current period.

Renewing concerns about a slowdown in cybersecurity.

Let's bring in Shaul Eal who is the managing director and senior analyst over at Cowan Shaul.

Great to see you first and foremost.

I mean, it, it's interesting the the stock price reaction that we're seeing here today and, and I'm trying to wrap my head around what they were talking about on the call with platform organization, the amount of times they said platform, I think it was like in the eighties on the call yesterday.

So all these things considered, what are investors still trying to understand about this new strategy going forward?

Sure indeed, uh platform organization within the broader cyber arena, not just Palo Alto has been topic, Du Jour over the post over the past few quarters now, um I think with platform organization um is that ability to consolidate um a large number of vendors or security vendors into just a handful and I think in that respect, Palo Alto is trying to separate themselves from the path they have introduced the number of platforms three to be precise.

Uh And actually, when you look at the past few quarters, despite stock reaction uh last quarter, um given some of the new data we have received last night, that strategy appears to be swinging in full mode ahead.

Yeah, and, and just for our viewers out there that are wondering why I even brought that up out the gate and, and they just like what the heck dude, straight into the, the, the deep recesses of what everybody is thinking about with this company.

But it should be top of mind actually because of how much they time, how much time they spend talking about it on the call and actually how it relates to the conversion of demand too.

How is this company in the demand cycle that we're seeing right now for some of their cyber security solutions going to be able to pull a lot of those corporate customers over to this new type of realm that they're trying to create, you know, given the very toxic landscape uh from a global perspective.

Um security is likely to remain tough mind in terms of uh C Os and Cio s with that in mind, there are really a large number of vendors uh talking on the customer and knocking on the customer's door uh offering their solutions.

Um And I think right now, what Palo Alto is trying to do in order kind of to convert that um is consolidating many solutions in many category, many product category into a handful, pretty much become sort of a supermarket for all of the uh corporate security needs.

Uh And so far we have seen uh and we're probably likely to continue and see great success in that respect.

So right now you go into the customer um selling them not just one product, one point solution, but rather an end to end platform.

And with that in mind, that ability uh to pretty much take the revenue and you know, multiply by three or four or even five times uh for the longer term.

I think that is a very good uh opportunity when you take a look at the pullback that we're seeing today off, another 7% of the stock also reacting negatively to their late to their previous earnings print.

Should investors be buying on the weakness or when would you think Palo Alto is more attractive at these levels?

So I think some of the data we have received last night, the fact that we are heading actually into the seasonally strong fourth quarter um with pipeline uh remaining very, very strong.

We think that right now we have gone through some sort of a de risking of the model and we wouldn't be surprised to see uh next quarter coming pretty much better than, than expected in terms of the estimate.

So we would translate that into a very, very attractive buying opportunity.

As we think about the next 3 to 6 months or even longer than that.

There was some fear just about customers facing spending, spending fatigue.

How long of an overhang that was going to be on the stock?

When you do see a bit of a turnaround coming, what's going to be that catalyst?

I think first on, on spending fatigue and, and vendor fatigue, I think given what we have seen over the course of the past um just a few months right now that actually most companies have been reporting solid results maintaining or even increasing their guidance into the latter part of 2024.

Um I think it is fair to assume that security spending still remains um very solid, very resilient in that respect.

So if we take that and, and also interpret that to Palo Alto and, and the entire group, uh we're expecting uh maybe back and loaded on the one hand, second half of this year, but I think that should manifest itself into uh expansion of multiples and better prices.

Xel Cowens, a senior analyst.

Thanks so much for taking the time to join us here again.

Palo Alto shares are under pressure off just about 7%.