Palo Alto Networks held a fourth quarter earning conference call on a Friday after market close and wound up outlining a three- to five-year vision. Give Palo Alto Networks CEO Nikesh Arora props for theatrics and pep.
The earnings turned out swell--especially when you consider the worst when a company delivers news on a Friday afternoon. On Aug. 18th shortly after 4:30 pm EDT, Arora kicked the call off.
"We apologize to people who are inconvenienced but as we had mentioned in our press release, we wanted to give ample time to analysts to have one-on-one calls with us over the weekend, and we have a sales conference that kicks off on Sunday. We want to make sure all our information was disclosed out there. So again, we apologize for the unique Friday afternoon earnings call. But clearly, we have enjoyed the attention."
We'll skip the actual fourth quarter results, but they were better than expected. Instead, it's worth focusing on a bevy of big picture items that made tuning in past Friday Happy Hour worth it. Here's a look at the big picture.
Cybersecurity vendors are under scrutiny. For years, security companies have had blank checks from enterprises. Who wants to be seen crimping on security? Higher interest rates have changed the dynamics.
"CFOs are scrutinizing deals, which means you have to be better prepared to answer their question and show the business value that you bring to them with your cybersecurity products," said Arora.
And that business value is what exactly? For Palo Alto Networks it's having a platform approach that can consolidate vendors, contracts, licenses and maintenance. Arora said:
"We can usually walk in and say, here, you can consolidate the following five, it doesn't cost you anymore, but you get a better outcome, and you get a modernized security infrastructure. So from that perspective, that strategy of ours is resonating. But there is more scrutiny. There are deals that go through multiple levels. There are some that get pushed. There are some that get canceled."
Cybersecurity total addressable market expands. Arora argued that commerce, digital transformation, cloud computing, IoT, AI and every new advance cooked up only creates more threat vectors. Securing these advances is going to require integration. "We at Palo Alto Networks as well as, to some degree, different plays in the industry, started to look at the various parts of these markets and say, like, these things need to start getting integrated because you can't deliver great security outcomes without these things getting integrated," he said.
Platforms matter. Palo Alto Networks isn't alone with its platform approach to security. Across the large technology vendors, it's all about platform. Platforms win because customers don't have time to integrate everything. Arora said:
"It seems obvious now, but five years ago, we had customers who had more cybersecurity vendors than they had IT vendors. And it was a customer's responsibility to take these vendors, deploy them across their infrastructure, make them work together to deliver security outcomes."
Bleeding edge because there's no choice. Arora said "you have to stay at the bleeding edge because you don't need your customers to be at the bleeding edge." "It is our responsibility as a security company to make sure we take all the innovation, we distill it, we make it work in an integrated fashion and deliver it to our customers at the fastest pace possible because the bad actors are not waiting," he added.
Evergreen innovation. This concept from Palo Alto Networks is worth cribbing for the enterprise technology supply chain. "We want to maintain this notion of being an evergreen innovation company," said Arora. "You always have to be scanning the market understanding, where the world is going, where technology is going to see what potential security risks are going to get created in the adoption of that technology, in the deployment of that technology to make sure we're ahead of the curve, and we start delivering security by design."
AI can't be wrong in security. Palo Alto Networks will focus on "precision AI" that can't be wrong. "We have to build a lot of our own models. We have to train them. We have to collect first-party data. We have to understand the data. Today, we collect approximately 5 petabytes of data. Yes, 5 petabytes of data on behalf of our customers and analyze it for them to make sure we can separate signal from noise and take that signal and go create security outcomes for our customers," said Arora.
The takeaway: Palo Alto Networks plans to embed precision AI throughout its entire product line whether that's copilots, UI enhancements or insights.
