Investing in Cybersecurity: PANW vs CRWD vs FTNT◉ Abstract
The cybersecurity landscape is rapidly evolving, with emerging threats and innovative solutions driving growth in the industry. This article examines the competitive dynamics between three leading cybersecurity stocks: Palo Alto Networks (PANW), CrowdStrike (CRWD), and Fortinet (FTNT). As these companies sprint to become the top cybersecurity provider, we analyse their strengths, weaknesses, and strategies for success.
◉ Global Cybersecurity Market Overview
The global cybersecurity market has experienced significant growth and is projected to continue expanding in the coming years. As of 2023, the market was valued at approximately USD 192.4 billion and is expected to reach between USD 501 billion and USD 608 billion by 2033, with compound annual growth rates (CAGR) ranging from 9% to 12% depending on the source and forecast period considered.
◉ Growth Drivers
1. Increasing Cyber Threats: The frequency and sophistication of cyber-attacks, including ransomware and data breaches, are rising, prompting organizations to enhance their security measures.
2. Digital Transformation: The rapid adoption of digital technologies, such as cloud computing and the Internet of Things (IoT), expands the attack surface and necessitates robust cybersecurity solutions.
3. Regulatory Compliance: Stricter regulations regarding data protection, like GDPR and CCPA, compel organizations to invest in cybersecurity to ensure compliance and protect sensitive information.
4. Proliferation of Smart Devices: The increasing use of connected devices in homes and industries creates more entry points for cyber threats, driving demand for advanced security solutions.
5. E-commerce Growth: The rise in online transactions increases the need for secure payment systems and data protection, further fuelling the cybersecurity market.
Remote Work Trends: The shift towards remote work has heightened the need for secure remote access solutions to protect organizational data from cyber threats.
◉ Regional Insights
● North America: This region dominates the global cybersecurity market, accounting for over 36% of the market share. The presence of major tech firms and a high incidence of cyber threats contribute to its leadership position.
● Europe: The European market is also growing rapidly due to increased digital transformation efforts and regulatory pressures that emphasize data security.
● Asia-Pacific: Expected to exhibit the fastest growth rate during the forecast period, driven by industrialization, rising internet penetration, and awareness of cybersecurity risks.
◉ Major Players in the Cybersecurity Market
1. Palo Alto Networks NASDAQ:PANW - $132.7 B
2. CrowdStrike Holdings NASDAQ:CRWD - $89.7 B
3. Fortinet NASDAQ:FTNT - $75.26 B
In this comparative analysis we are focused to provide a detailed understanding of the competitive dynamics of three cybersecurity giants: Palo Alto Networks, CrowdStrike Holdings, and Fortinet.
◉ Company Overviews
● Palo Alto Networks
Palo Alto Networks, Inc. is a leading provider of cybersecurity solutions worldwide. The company offers a range of products and services, including network security platforms, cloud security solutions, security operation solutions, subscription services, and professional services. Headquartered in Santa Clara, California, Palo Alto Networks was incorporated in 2005 and has since become a trusted partner for organizations seeking to protect themselves from cyber threats.
● CrowdStrike Holdings
CrowdStrike provides cloud-delivered cybersecurity solutions, offering endpoint, cloud workload, identity, and data protection. Its Falcon platform provides various security services, including threat intelligence, vulnerability management, and AI-powered workflow automation. Headquartered in Austin, Texas, CrowdStrike was incorporated in 2011.
● Fortinet
Fortinet, Inc. was founded in 2000 and is headquartered in Sunnyvale, California. The company provides comprehensive cybersecurity and converged networking and security solutions worldwide. Its offerings include secure networking solutions, network firewall solutions, wireless LAN solutions, and secure connectivity solutions. Additionally, Fortinet provides Unified SASE solutions, security operations solutions, and a range of security services and support. The company serves a diverse customer base, including enterprises, service providers, governments, and small and medium-sized businesses.
◉ Strategic Growth Initiatives of Leading Cybersecurity Players
● Palo Alto Networks
1. Platformization: Transitioning from a traditional firewall vendor to a comprehensive cybersecurity platform provider, offering a wider range of security solutions.
2. Next-Generation Security: Continuing to deliver advanced security solutions to address evolving cyber threats.
● CrowdStrike
1. Innovation: Leveraging AI-powered capabilities to enhance the Falcon platform and maintain a competitive edge in the cybersecurity market.
2. Expansion: Expanding into adjacent markets, such as cloud security and identity protection, to broaden its customer base and product offerings.
● Fortinet
1. "Rule of 45" Framework: Adhering to the "Rule of 45" framework to balance revenue growth with profitability, ensuring a sustainable business model.
2. Product Refresh Cycle: Implementing a strategic product refresh cycle to drive upgrade activity among existing customers and stimulate revenue growth.
◉ Technical Standings
● Palo Alto Networks
➖ The stock has been on a strong upward trajectory, marked by a consistent pattern of higher highs and higher lows.
➖ Following a significant breakout last month, it is currently trading at an all-time high, with expectations for further increases.
● CrowdStrike Holdings
➖ In general, this stock is trending upward, although it has faced considerable price volatility over an extended period.
➖ After reaching an all-time high close to the 400 mark, it underwent a sharp correction.
However, the stock is now climbing again and nearing its previous peak.
● Fortinet
➖ This stock had undergone a lengthy consolidation phase lasting nearly three years, resulting in the development of a Broadening pattern.
➖ After a recent breakout, the price is now targeting new highs.
◉ Relative Strength
➖ The chart clearly demonstrates Fortinet's exceptional performance, showcasing an impressive return of nearly 88%. In comparison, Mastercard and Visa have generated returns of 53% and 41%, respectively.
◉ Revenue & Profit Analysis
● Palo Alto Networks
◾ Year-over-Year
➖ In FY24, Palo Alto Networks (PANW) celebrated an impressive revenue surge of 16.5%, achieving $8,027 million, a notable increase from $6,893 million in FY23.
➖ The EBITDA for FY24 also experienced a substantial boost, reaching $1,094 million, up from $590 million in FY23.
◾ Quarter-over-Quarter
➖ In the most recent October quarter, PANW reported revenues of $2,139 million, a slight dip from the $2,190 million recorded in July 2024. However, this still represents a year-over-year growth of nearly 14% from $1,878 million in the same quarter last year.
➖ The company also reported its highest-ever EBITDA of $413 million in October, an increase from $314 million in July 2024. Compared to the same quarter last year, this figure has risen by almost 20% from $279.5 million.
➖ In October, the diluted EPS rose to $7.69 (LTM), up from $7.28 (LTM) in July 2024, marking an extraordinary year-over-year increase of 333% from $1.78 (LTM).
● CrowdStrike
◾ Year-over-Year
➖ CrowdStrike (CRWD) saw a robust revenue growth of 36.3% in FY23, reaching $3,055 million, up from $2,241 million in FY22.
➖ Conversely, the EBITDA for FY24 has seen a decline, reporting $106 million, down from $118 million in FY23.
◾ Quarter-over-Quarter
➖ In the latest October quarter, CRWD's revenue rose to $1,010 million, compared to $964 million in July 2024. This reflects a year-over-year increase of nearly 28.5% from $786 million in the same quarter last year.
➖ The EBITDA for the most recent June quarter was $15.3 million, showing a significant drop from $52.4 million in July 2024.
➖ In October, the diluted EPS decreased to $0.51 (LTM), down from $0.69 (LTM) in July 2024.
● Fortinet
◾ Year-over-Year
➖ In fiscal year 2023, Fortinet reported a remarkable revenue increase of 20%, reaching $5,304 million, up from $4,417 million in fiscal year 2022.
➖ The EBITDA also saw a significant rise, with the 2023 fiscal year totaling $1,350 million, compared to $1,070 million the previous year.
◾ Quarter-over-Quarter
➖ In the latest September quarter, revenue continued to grow, hitting $1,508 million, an increase from $1,434 million in June 2024. This represents a substantial year-over-year growth of nearly 13% from $1,335 million.
➖ Furthermore, EBITDA for the September quarter neared $500 million, up from $465 million in the prior quarter, reflecting an impressive increase of nearly 51% from $330 million in the same quarter last year.
➖ The diluted earnings per share (EPS) also saw a significant increase in September, rising to $0.7 (LTM) from $0.5 (LTM) in June 2024, marking a notable jump of 70% compared to $0.41 (LTM) in the same quarter last year.
◉ Valuation
● P/E Ratio
➖ PANW stands at a P/E ratio of 48.6x.
➖ CRWD is at a P/E ratio of 707.9x.
➖ FTNT shows a P/E ratio of 49.2x.
◾ These numbers indicate that CRWD is considerably overvalued when compared to its competitors.
● P/B Ratio
➖ PANW's P/B ratio stands at 22.5x.
➖ CRWD's P/B ratio is 29.3x.
➖ On the other hand, FTNT's P/B ratio is significantly higher at 82.9x.
◾ FTNT's high P/B ratio may indicate overvaluation, but its asset-light business model reduces the significance of this metric.
● PEG Ratio
➖ PANW boasts a PEG ratio of 0.14.
➖ CRWD's PEG ratio is recorded at 0.66.
➖ FTNT, meanwhile, has a PEG ratio of 1.26.
◾ Analyzing the PEG ratios reveals that PANW is currently undervalued relative to its peers.
◉ Cash Flow Analysis
➖ PANW has achieved an impressive operating cash flow of $3,257 million for the fiscal year 2024, a substantial rise from $2,777 million in fiscal year 2023.
➖ In a similar vein, CRWD has also seen a positive trend in its operating cash flow, which has climbed to $1,166 million in fiscal year 2024, compared to $941 million the year before.
➖ Furthermore, FTNT has reported a remarkable increase in its operating cash flow, growing from $1,730 million in fiscal year 2022 to $1,935 million in fiscal year 2023.
◉ Debt Analysis
● Palo Alto Networks
➖ Debt to Equity Ratio: Approximately 0.1 as of October 2024, indicating a stable financial structure.
➖ Total Debt: About $645 million.
➖ Total Shareholder Equity: $5,911 million.
◾ PANW's ratio reflects a cautious debt approach, balancing equity and debt financing, with net debt well-supported by operating cash flow, enhancing financial stability.
● CrowdStrike
➖ Debt to Equity Ratio: Approximately 0.24.
➖ Total Debt: $743 million.
➖ Total Shareholder Equity: $3,096 million.
◾ CRWD's ratio suggests a thoughtful strategy regarding debt, maintaining a balance between equity and debt financing.
● Fortinet
➖ Debt to Equity Ratio: Approximately 1.1, indicating a significant level of debt relative to equity.
➖ Total Debt: $993 million.
➖ Total Shareholder Equity: $908 million.
◾ FTNT’s ratio shows a considerable reliance on debt financing, which can facilitate growth but also introduces risks related to interest obligations.
◉ Top Shareholders
● Palo Alto Networks
➖ The Vanguard Group has significantly increased its investment in Palo Alto Networks, now holding an impressive 9.13% stake, which marks a 1.53% rise from the last quarter.
➖ In comparison, Blackrock holds a notable 7.65% share in the company.
● CrowdStrike
➖ Turning to CrowdStrike, The Vanguard Group has also enhanced its position, elevating its ownership to an impressive 8.76%, reflecting a 1.84% increase since the previous quarter.
➖ Conversely, Blackrock possesses a considerable 7.35% stake.
● Fortinet
➖ Regarding Fortinet, The Vanguard Group commands a substantial 8.79% share in the firm.
➖ In contrast, Blackrock holds a 7.44% stake.
◉ Conclusion
After conducting an exhaustive analysis of the major players in the cybersecurity sector, which included an in-depth look at both technical features and financial reports, we have determined that although Palo Alto Networks (PANW) might seem more appealing in terms of valuation, Fortinet (FTNT) stands out as the leading candidate in the industry due to its solid financials. Although concerns about debt exist, the company's strong cash reserves mitigate these worries significantly.
On the other hand, CrowdStrike (CRWD) has faced a recent setback with an outage that has shaken investor trust, leading to a decline in its stock price and rendering it a less favourable investment option for the foreseeable future.
Moreover, the cybersecurity sector is set to grow significantly due to rising cyber threats, fast-paced technology changes, and stricter regulations. Investors are advised to conduct thorough research, define clear investment goals, and maintain a long-term outlook to take advantage of this growth while minimizing risks.
