This One Stock Is Winning the Global Cybersecurity War

NEW YORK (TheStreet) -- Cybersecurity firm Palo Alto Networks (PANW - Get Report) is cashing in on the data center security market at the expense industry titans such as Cisco Systems (CSCO - Get Report) and Check Point Software (CHKP - Get Report) . Data center security now represents nearly 40% of Palo Alto's revenue. In the Americas, data center business accounts for about half of total revenue versus only 10% just 18 months ago. Such gains helped Palo Alto beat analyst estimates. On Sept. 9 the company reported that revenue for the fiscal fourth quarter (ended July) rose 59% year over year to $283.9 million, beating the consensus estimate of $256.2 million by nearly 11%. Billings of $393.6 million

advanced 69%. Palo Alto's financial performances -- accelerating top line growth and beating analysts expectations -- are important clues that we look for when screening for investment ideas in the technology market. On the flip side, we've discovered five of of Palo Alto's IT peers that aren't in as rosy a situation and found themselves on our list of 29 stocks at risk of big losses this September. The company says data center security has been under-served for a long time, as companies mainly focused on protecting their network perimeters. However, once the perimeter gets breached, hackers usually head right for the data center where a lot of key assets reside. Palo Alto has seen great success in the data center with its PA-7050 next-generation firewall, taking market share from Cisco and Check Point. The newly released PA-7080 is Palo Alto's most powerful firewall, featuring performance of 200 Gbps -- it's fast. In the July quarter, Palo Alto added a record 2,000+ new accounts, ending fiscal 2015 with a customer base of more than 26,000, including nearly half of the Global 2000. Once Palo Alto lands a big client, it can generate more sales by replacing legacy solutions. And big clients tend to generate plenty of follow-on business. As of the July quarter, the company's 25 largest customers had spent a minimum $9.2 million, up 12% from the previous quarter and up 60% from the same quarter last year. After advancing 44% in the April quarter, product revenue in the July quarter of $154 million rose 54%. Recurring services and support revenue of $129.8 million was up 65%, driven by growth of 70% in the security subscription business (22% of total revenue). With more subscription revenue, Palo Alto has better visibility into future cash flows. Deferred revenue at the end of the July quarter totaled $713.7 million, up 69% year over year. The company's WildFire cloud-based malware detection subscription service now has more than 7,000 customers, up from 3,000 paying customers a year ago. In the July quarter, WildFire's attach rate on product sales topped 50%, up from 40%+ a year ago. Palo Alto's new TRAPS endpoint protection service (introduced at the start of fiscal 2015) is gaining traction and now has 150 customers. TRAPS gives Palo Alto a strong presence in the $4-billion market for endpoint protection. An alternative to traditional antivirus solutions from vendors such as Symantec (SYMC - Get Report) , TRAPS continuously looks for attack threats across all endpoint devices. On the earnings conference call last night, Palo Alto CEO Mark McLaughlin said nearly all new sales visits now involve organizations asking for better endpoint protection. Palo Alto customers are increasingly combining TRAPS with WildFire to improve their overall security profile, so the company now has an overlay sales team in place trying to sell the two subscription services together. For the October quarter, Palo Alto sees revenue of $280 million to $284 million, above the consensus estimate of $269.6 million.

By Rob DeFrancesco

Source: http://www.thestreet.com/story/13284689/1/this-one-stock-is-winning-the-global-cybersecurity-war.html?kval=dontmiss