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Palo Alto Networks 18 To 24 Months Ahead Of Cloud Rivals: Nikesh Arora

Palo Alto Networks has more cloud security ARR in a quarter than its startup rivals post over an entire year and more engineers focused on cloud security that all its competitors combined, CEO Nikesh Arora says.

Palo Alto Networks has an 18-to-24-month lead in cloud security over any competitor despite the massive funding rounds and lofty valuations it’s recently received.

Chairman and CEO Nikesh Arora told investors the Santa Clara, Calif.-based platform security vendor has more cloud security annual recurring revenue (ARR) in a single quarter than its upstart rivals are posting over an entire 12-month period. Palo Alto Networks also has more engineers building cloud security capability than all the other startups in the space combined, according to Arora.

“I firmly believe we’re 18-to-24 months ahead from a competitive platform perspective,” Arora said Thursday. “So we’re not worried about our strength and our ability.”

[Related: Palo Alto Networks: We’re Not Looking For More Large M&A]

Astronomical sums of money have been flowing in recent weeks to startups that are laser focused on cloud security. Orca Security in October raised an additional $340 million of Series C funding on a $1.8 billion valuation; Wiz six days later raised $250 million of Series C funding on a $6 billion valuation; and Lacework Thursday raised a record-breaking $1.3 billion of Series D funding on a $8.3 billion valuation.

“I think we announced $270 million of ARR for Prisma Cloud in Q4 … which puts us at six-to-ten times above any of those startups that are getting funded at $6-to-8-billion [valuations],” Arora said. “Clearly, that’s not a price I’d like to pay given that I’m sitting on five-to-ten times that ARR myself.”

Orca Security fired back, with CEO Avi Shua writing, “Palo Alto Networks has every right to be concerned as customers abandon Prisma Cloud in droves to much more capable platforms like Orca Security…We would recommend Mr. Arora focus on integrating the half dozen solutions PAN bought so that defenders aren’t required to connect disparate tools to understand their complete cloud security risks.”

A Wiz spokesperson told CRN in a statement, “We admire the business Palo Alto Networks has built and are flattered they‘re developing capabilities based on our technology.” And a Lacework spokesperson told CRN in a statement that their technology was built in the cloud for the cloud from day one. “The cloud security market is undergoing massive change, which is ultimately a good thing for customers.”

Palo Alto Networks has the third-highest valuation of any pure-play cybersecurity vendor at nearly $51 billion thanks to the sizable investments the company has made across network security, cloud security, security operations, and incident response.

Arora said Palo Alto Networks identified three years ago that there were going to be a lot of new security products created specifically for the cloud and attempted to get ahead of that trend by making six-or-seven acquisitions in the space. The rest of the market eventually caught onto the trend Palo Alto Networks identified early and in response aggressively funded startups focused on cloud-native security.

“It’s not valuation envy,” Arora said. “It’s a validation that everybody’s identified that [cloud] as a big area. I believe that our teams have worked hard toward building an early lead, and our job is to sustain that lead, strengthen our product continually, and make sure that our capabilities are made apparent to our customers.”

Palo Alto Networks sales for the quarter ended Oct. 31 jumped to $1.25 billion, up 31.9 percent from $946 million a year ago. That beat Seeking Alpha’s estimate of $1.2 billion.

The company recorded a net loss of $103.6 million, or $1.06 per diluted share, 12.4 percent worse than a net loss of $92.2 million, or $0.97 per diluted share, the year before. On a non-GAAP basis, net income jumped to $170.3 million, or $1.64 per diluted share, up 7.7 percent from $158.1 million, or $1.62 per diluted share. That beat Seeking Alpha’s net income projection of $1.57 per diluted share.

Palo Alto Networks’ stock dipped $4.99 (0.96 percent) to $515 per share in after-hours trading. Earnings were announced after the market closed Thursday.

Subscription and support revenue for the quarter leapfrogged to $951.9 million, up 34.3 percent from $708.7 million last year. Product revenue for the quarter climbed to $295.5 million, up 24.5 percent from $237.3 million the year prior. Sales in the Americas increased by 30 percent in the quarter, according to Chief Financial Officer Dipak Golechha.

For the coming quarter, Palo Alto Networks expects diluted non-GAAP net income of $1.63 to $1.66 per share on total sales of $1.265 million to $1.285 million.

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