US companies have been required to report cyber security breaches since 2002.
In December 2015, the European Union agreed on security laws that will force firms to report breaches, and many Asian countries are expected to follow suit.
Security is now becoming a priority spending item with enterprises, and is becoming a strategic focus.
Data security is a big problem and one that isn’t going away.
The quickest way to destroy your brand and the trust of your customers and stakeholders is through a data breach.
Palo Alto Networks (PANW) is an enterprise security company focussed on application enablement and threat prevention.
The company has delivered significant innovation in the network security market in recent years with their Next Generation Firewall (NGFW).
Their NGFW provides more granular control, a requirement for today’s internet applications and ever increasing mobile workforce.
In addition to a NGFW, Palo Alto Networks’ competitive position resides in its end-to-end platform. This covers:
· Next Generation Firewall (NGFW)
· Threat Intelligence
· Endpoint Protection
Palo Alto Networks is one of the only providers able to fully integrate all aspects of threat prevention into a true end-to-end platform focussed on prevention and is demonstrating a sustainable competitive advantage.
The company is winning in the marketplace against point solutions unable to offer a fully automated prevention platform, and against incident response vendors as enterprises prefer a prevention architecture.
Recent innovations such as WildFire (threat Intelligence) as well as other introductions are increasing subscription revenue to the point where recurring revenue now represents 60% of all Palo Alto Networks’ billings.
At a respectable 90% renewal rate the subscriptions business may create a sticky annuity-like revenue stream, in my opinion.
This increase in subscription revenue has improved margins and earnings visibility.
Palo Alto Networks has not been immune to the selloff in growth stocks in 2016.
However, we continue to believe the economic environment is supportive of IT spending and security in particular.
Longer term we feel the market isn’t appreciating the quality of the business model and over time the stock price should appreciate to reflect longer term fair value.
These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.