Palo Alto Networks Q4 Earnings: Record New Customers Are Flocking To The Platform

In an increasingly competitive enterprise security market, Palo Alto Networks is differentiating its offerings by packaging them into the kind of integrated platform necessary to fend off modern threats, CEO Mark McLaughlin told investors in Tuesday's fourth-quarter earnings call.

Sharing financial results for the cybersecurity vendor's fourth quarter and entire fiscal year, McLaughlin said his company stands apart from competitors that are either selling legacy firewalls or disjointed point solutions.

Palo Alto Networks is adding advanced firewall, endpoint protection and threat-detection services to its Next-Generation Security Platform rapidly, and is "very convinced the platform is the winning strategy," he said.

[Related: CRN Exclusive: Palo Alto Networks CEO On Security Platform Evolution And When Partners Can Expect Traps To Take Off]

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The Santa Clara, Calif.-based vendor saw a 49 percent increase in revenue in the fiscal year with $1.4 billion in sales in 2016. Quarterly revenue increased 41 percent year over year, to a high-water mark of just more than $400 million in the fourth quarter.

"In our industry, these growth rates at our scale are unprecedented," McLaughlin told investors.

CFO Steffan Tomlinson said the company's margins grew to 79.4 percent, netting $46.2 million in income for the quarter. Earnings per share on a non-GAAP basis came in roughly as Wall Street expected at 50 cents.

The stock, after initially climbing after the market closed, reversed course and fell roughly 5 percent to $136.20 a share at press time.

In the call, McLaughlin took credit for Palo Alto Networks being the driving force in a major paradigm shift from stand-alone offerings to a comprehensive platform model. That's an approach customers are adopting at record numbers, he said, and the reason his company is "outpacing the competition and grabbing market share."

A platform is vital in an age of increasingly automated and sophisticated attacks, he said.

Customers can no longer be expected to act as back-end integrators of best-of-breed technologies, McLaughlin said. "It's increasingly obvious this approach is failing."

The customers understand they need highly automated, integrated threat detection systems that leverage a large ecosystem. That's why they're awarding larger deals to fewer vendors, McLaughlin said.

In the fourth quarter, Palo Alto Networks added 2,000 new customers—more than ever before in its history, growing its total base to 34,000 companies.

The importance of the ecosystem, the CEO said, is reflected in a partnership that Palo Alto Networks has entered with global systems integrator Accenture, along with analytics and endpoint security vendors Splunk and Tanium respectively, through which the three companies will offer joint customers integrated security with value-added services.

Palo Alto Networks has fully embraced delivering offerings through a Software-as-a-Service model across hybrid infrastructure, combining the benefits of its Traps endpoint protection and next-generation firewalls.

At the same time, legacy firewall vendors are limited in protecting devices in the field, and "they are kind of getting down to the last card you can play, which is price," McLaughlin said.

And in the new generation of endpoint security providers, most looking to turn their product capabilities into services "can't stand up to the platform."

"People are getting kind of desperate out there," McLaughlin said.

In developing its platform, Palo Alto Networks prefers that path of natively built technologies.

"It is way more possible to get that outcome when things are under your control and you build them yourselves," McLaughlin said.

That preference doesn't preclude future acquisitions, but it recognizes that customers know the difference between carefully built and integrated technologies, and things vendors purchase and "smash together," he said.

"The native concept to the platform is very, very important and our primary motion would be to make things ourselves when we can," McLaughlin said.

Tomlinson told investors the company has set revenue guidance for first-quarter 2017 in a range of $396 million to $402 million, which would yield year-over-year growth between 33 percent and 35 percent.