New Palo Alto Networks CEO: We're Still Very Early In The Cloud Revolution For Enterprises


Incoming Palo Alto Networks CEO Nikesh Arora said businesses increasingly need an independent security team to come in and construct a plan that protects their data across multiple public clouds.

"Given that we're all going toward the cloud and these huge amount of data sets are being created, we need to make sure we understand their aspirations and set our aspirations [accordingly]," Arora told Wall Street analysts Monday. "I think that's where the opportunity is."

The Santa Clara, Calif.-based platform security vendor announced late Friday that former Google and SoftBank executive Arora will take over this Wednesday as chairman and CEO from Mark McLaughlin, who is stepping aside into the vice chairman role after nearly seven years of leading Palo Alto Networks.

[RELATED: Palo Alto Networks Taps Longtime Google Leader Nikesh Arora To Be Next CEO]

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Arora said cloud was one of the first technical advancements in history to first come to consumers in a big way and then slowly work its way up into the enterprise. Google, Amazon and Microsoft all recognize that, Arora said, and are charging ahead with trying to address the cloud opportunity among businesses.

However, to some degree, Arora each said of the public cloud players offers a proprietary solution, forcing businesses to choose between one or the other. Therefore, Arora said companies are hungry for trusted, independent security experts to serve as the arbiter between all the different cloud options they have and figure out how to protect all of their data.

"We're still early in the cloud revolution," Arora said.

As companies transition workloads and information to the cloud over the next few decades, Arora said a huge number of new data sets are going to be created, meaning that companies will need to keep track of a lot of new data by utilizing artificial intelligence and machine learning. Palo Alto Networks' ability to bring best of breed capabilities through its application framework is important to customers, Arora said.

Arora said he hopes to spend the early part of his tenure gaining a better understanding of Palo Alto Networks and its priorities, with an emphasis on ensuring that the company continues to execute at the pace McLaughlin has set.

Over future quarters, Arora said he hopes to have a more substantive conversation about where Palo Alto Networks sees the opportunity for mergers and acquisitions.

"The more time I've spent, the more excited I get about the space, about the company and the people," Arora said. "I think cybersecurity is one of the most exciting spaces out there."

McLaughlin said he has talked with the Palo Alto Networks board over the past several quarters about succession planning, although there wasn't any hurry to make a move.

"If we found the right person at the right time, we would do it," McLaughlin told investors Monday.

In thinking about the future, McLaughlin said Palo Alto Networks already had some of the best security professionals in the world led by Founder and CTO Nir Zuk and Chief Product Officer Lee Klarich, as well as some of the strongest operating executives in the world starting with President Mark Anderson and Chief Marketing Officer Rene Bonvanie.

"Security is something we know genetically and from a DNA perspective," McLaughlin said.

In thinking about what Palo Alto Networks is going to look like in five years, McLaughlin realized it was going to be more about the operating platform, with massive data sets, analytics, infrastructure, cloud, and SaaS taking center stage.

"It's very clear that security is heading in that direction, and we're forcing it in that direction as a company," McLaughlin said.

As a result, McLaughlin said Palo Alto Networks wanted its next CEO to not only be an accomplished business leader and a great cultural fit, but also someone who had experience with large-scale platforms capable of handling massive amounts of data.

Through his experience as Google's chief business officer and SoftBank's president, McLaughlin said Arora has demonstrated the ability to run very large and fast-growing global organizations while scaling at rapid rates.

"There's not a lot of those platforms in the world, and there's not a lot of people who have that kind of experience," McLaughlin said. "And we're fortunate to have found Nikesh."

McLaughlin said the company has spent the past few months with Arora to ensure that alignment exists across all of those variables. He plans to continue working with Nikesh in the coming months to assist with that transition.

Sales for the quarter ended April 30 skyrocketed to $567.1 million, up 31.3 percent from $431.8 million the year prior. That beat Seeking Alpha's estimate of $545.7 million.

Palo Alto Networks recorded a net loss of $46.7 million, or 51 cents per share, 23.3 percent better than a net loss of $60.9 million, or 67 cents per share, the year before. On a non-GAAP basis, net income jumped to $95.1 million, or 99 cents per diluted share, up 66.5 percent from $57.1 million, or 61 cents per diluted share, last year. That beat Seeking Alpha's net income projection of 96 cents per share.

The company's stock dropped $8.16 (3.9%) to $201.03 per share in trading Monday morning. Earnings were announced before the market opened.

Subscription and support revenue for Palo Alto Networks soared to $351.9 million, up 31.5 percent from $267.6 million the year before. Also, product revenue strengthened to $215.2 million, up 31.1 percent from $164.2 million last year.

Sales in the Americas increased by 29 percent in the quarter, according to Chief Financial Officer Kathy Bonanno.

For the coming quarter, Palo Alto Networks expects non-GAAP net income of $1.15 per diluted share to $1.17 per diluted share on total sales of $625 million to $635 million. FactSet had been projecting non-GAAP net income of $1.21 per diluted share on earnings of $619 million.