Palo Alto's Network Security Strategy Pays Off

Palo Alto isn't profitable yet, but record revenue and rapid growth in the NGFW market hold out promise.

By Sean Michael Kerner | Posted Nov 25, 2014
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Palo Alto Networks CEO Mark McLaughlin has a simple strategy for growing his business: land and expand. McLaughlin outlined his strategy during his company's first quarter fiscal 2015 earnings call, in which he reported record revenue.

For the quarter, Palo Alto reported revenue of $192.3 million for a 50 percent year-over-year gain. The company still isn't making a profit, however, and reported a GAAP net loss in the quarter of $30.1 million, an increase over the $7.9 million net loss reported for the first quarter of fiscal 2014.

Looking forward, Palo Alto provided second quarter fiscal 2015 guidance for revenue to be in the range of $200 to $204 million.

McLaughlin noted during his company's earnings call with financial analysts that the first quarter 2015 results reflect the power of Palo Alto's land-and-expand strategy.

"On the land side, we continue to acquire customers as a very fast pace and are now pleased to serve approximately 21,000 customers worldwide," McLaughlin said.

McLaughlin cited several examples of new customer wins in the quarter, including competitive replacements of Cisco, Bluecoat and Websense gear.

"The expand side of the business also continues to grow quickly," McLaughlin said. "To make our top 25 customer list in Q1, a customer had to have spent a minimum of $6.1 million in lifetime value, up from $5.6 million last quarter."

Palo Alto's technology historically has belonged to the product category known as Next Generation Firewalls (NGFW). McLaughlin noted that there are multiple vendors that have jumped on the NGFW marketing bandwagon, though he sees a number of competitive differentiators for his firm. NGFW platforms do more than just deep packet inspection. They also offer application visibility features, as well as capabilities sometimes associated with IPS (Intrusion Prevention Systems).

"When we look at our win rates across the board, we’re taking business from everybody in the market today, and that looks like that will continue for quite some time," McLaughlin said.

Overall, McLaughlin commented that the security market is very strong right now. "We definitely see an increase in security budgets across the board, and that’s on a global basis as well," 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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