Zscaler CEO: Palo Alto Networks’ New Bundling Strategy Will ‘Unravel Over Time’

In response to a question from an analyst about Palo Alto Networks’ shift in strategy, Zscaler CEO Jay Chaudhry said Thursday that the competing security vendor is ‘in a defensive position’ as demand erodes for traditional firewalls.

Zscaler Founder and CEO Jay Chaudhry said Thursday that network security vendors such as Palo Alto Networks are “in a defensive position” as demand erodes for traditional firewalls, in favor of strategies focused on zero trust security.

Chaudhry made the comments as the San Jose, Calif.-based company reported results for the second quarter of its fiscal 2024, ended Jan. 31, which beat analyst estimates on both revenue and earnings.

[Related: Analysis: Palo Alto Networks Disrupts Itself, Again]

The Zscaler CEO was responding to a question from a Wall Street analyst about the potential impact to the vendor from competitors providing customers with products free of charge. Last week, Palo Alto Networks announced a revamp of its growth strategy, which includes providing free product offers to help enable customers to transition onto its cybersecurity platform.

During Zscaler’s quarterly call with analysts Thursday, Chaudhry said that “the role of firewalls is diminishing and the demand for zero trust security is growing. And this was bound to impact sales of firewall vendors.”

“This naturally puts the legacy vendors in a defensive position. And they're trying to give away products as bundles, which end up becoming ‘shelfware,’” he said, referring to products that go unused or under-used.

“This strategy starts to unravel over time. We'll stick to our strategy,” Chaudhry said.

CRN has reached out to Palo Alto Networks for comment.

For Zscaler’s fiscal Q2, revenue climbed 35 percent year-over-year to $525 million, above the Wall Street analyst consensus estimate of $507.2 million. Non-GAAP net income was 76 cents per share, beating analyst estimates by 18 cents per share.

Chaudhry touted recent wins including demand for its recently announced secure access service edge platform. The offering, dubbed the Zscaler Zero Trust SASE, includes the vendor’s first SD-WAN offering, enabling the company to offer a single-vendor SASE platform for the first time.

“We have seen early adoption of our Zero Trust SASE from customers across a range of industries including a U.S.-based energy and retail company, a Europe-based Fortune 500 manufacturing company, a U.S.-based financial services company and many more,” Chaudhry said during the quarterly call.

Zscaler’s stock price was down 8.8 percent in after-hours trading Thursday, to $220.60 a share.