Palo Alto Networks Virtual Software Business Growing

Palo Alto CEO claims that growth in the virtual appliances business is not cannibalizing physical hardware.

By Sean Michael Kerner | Posted Nov 22, 2016
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Palo Alto Networks reported its first quarter fiscal 2017 revenues on November 21, showing growth across the business, including both physical and virtual appliances.

For the quarter, Palo Alto reported revenue of $516.9 million for a 33 percent year-over-year gain. The company didn't generate a profit though, coming in with a net loss of $61.8, million up from a net loss of $39.9 million in the first quarter of fiscal 2016. Looking forward, the company provided second quarter fiscal 2017 guidance for revenue to be in the range of $426 million to $432 million, for a 27 to 29 percent growth rate year-over-year.

Palo Alto CEO Mark McLaughlin said on his company's earnings call that Palo Alto now has over 35,500 customers worldwide. He also noted that Palo Alto's VM-Series of virtual next generation firewall appliances now has over 2,000 customers.

"Half of our new VM-Series customers in the quarter were first time customers to Palo Alto Networks with the VM capability being their first experience working with us," McLaughlin said.

During the earnings call, McLaughlin was asked by an analyst if the VM-Series was potentially cannibalizing some of Palo Alto's hardware product revenues. McLaughlin responded that in his view, the VM-Series as well as Palo Alto's overall cloud services is a great selling point for the company, as it provides consistency and security across on-premises, hybrid and public cloud deployments.

McLaughlin added that with half of the new VM-Series customer being first time Palo Alto customers, the virtual form factor is clearly opening doors for Palo Alto as a company. Going a step further, he noted that the majority of VM-Series customers do in fact come back and purchase hardware at some point as well.

As has been his habit in earnings calls, McLaughlin also commented on the competitive deals Palo Alto has won over other vendors, including Cisco and Check Point. He also noted that Palo Alto has faster revenue growth than its rivals.

"When we look at the quarter we just posted with 34 percent revenue growth and then look at the major competitors, we are 3 times higher than Cisco in growth and 5 times higher than Check Point in growth," McLaughlin said.

Sean Michael Kerner is a senior editor at Enterprise Networking Planet and InternetNews.com. Follow him on Twitter @TechJournalist

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