Palo Alto’s stock could rise as rival Cato says it wins 70% of faceoffs

Shares of cybersecurity provider Palo Alto Networks have been surging – up an average of 28% annually since the company’s initial public offering in July 2012 and up 35% so far in 2024.

Will the company’s stock price continue to rise after this Friday’s stock split? The answer could depend on whether Palo Alto prevails over its competitors in an emerging growth sector of the cybersecurity market.

Palo Alto’s business is going well – the company reported better-than-expected results for the first quarter of fiscal 2025, raised full-year guidance and announced a 2-for-1 stock split effective Dec. 13 Investopedia.

But Palo Alto faces rivals like privately held Cato Networks — a pioneer in Secure Access Service Edge, a technology that protects corporate networks by monitoring employee computers and mobile devices, according to a Forbes Personnel report.

According to my Nov. 18 interview with Cato CEO Shlomo Kramer, Cato says it receives 70% of bids against Palo Alto. A Palo Alto spokesman declined two requests for comment on Cato’s winning percentage.

Meanwhile, Gartner’s Magic Quadrant named Palo Alto and Cato as leaders in the SASE market CRN.

According to claims from competitors Wiz and Cato, Palo Alto’s strategy of acquiring dot products was flawed because customers found them disjointed.

However, Palo Alto told me that platformization — a strategy to increase revenue by consolidating and bundling services — is addressing this problem, according to my September report Forbes Post. As I describe below, Kramer disagrees.

Despite the intense competition, SASE’s nascent growth means Palo Alto’s stock has the potential to continue rising, according to analysts.

Additionally, despite Cato’s high win rate against Palo Alto, SASE appears to be a game in which both companies could be successful.

Palo Alto Networks: Strong Performance and Outlook

On November 20, Palo Alto Networks beat expectations and raised guidance.

Here are the highlights:

• First quarter fiscal 2025 revenue: $2.14 billion – 13.8% more than last year and $20 million more than last year Visible alpha Consensus estimate.
• First quarter fiscal 2025 profit: $350.7 million – more than 80% and $78.6 million higher than Wall Street estimates Investopedia.
• Fiscal 2025 revenue forecast: $9.145 billion — the midpoint of a range between $9.12 billion and $9.17 billion — $20 million more than the company’s previous estimate, it said Investopedia.
• Fiscal 2025 revenue-adjusted earnings per share forecast: $6,325 – the midpoint of a range between $6.26 and $6.39 – eight cents more than the midpoint of the company’s previous estimate, it said Investopedia.

Customers are realizing that “platformization is the game changer that solves security and enables better AI outcomes,” Palo Alto CEO Nikesh Arora told investors Investopedia.

Cato is skeptical of Arora’s claim. “Transforming a portfolio company into a platform company is about as easy as decoding an omelette,” Kramer said in a July company release.

“Security is a data problem. A platform provides high-quality, contextualized data for real-time protection and stores that data in a single data lake for detection. You can’t get such high-quality data from a portfolio company, no matter how pretty the management interface is,” Kramer added.

The burgeoning SASE market opportunity

According to Gartner, SASE is a large market growing at a compound annual rate of 30% to reach $25 billion in 2027.

According to a report presented by Gartner, SASE demand is surging as companies look for “a unified technology platform from a single vendor” to provide distributed teams with remote access to their computing resources CRN.

Palo Alto and Cato ranked first and second in Gartner’s July 2024 SASE Magic Quadrant.

Palo Alto was the winner in both vision and execution. How come? While customers said the company’s services were more expensive than competitors, Palo Alto’s plus points reportedly included “strong security and networking capabilities delivered through a unified platform,” high financial profitability and a large customer base to count CRN.

Cato’s No. 2 ranking was due to a mix of positives and opportunities for improvement. Gartner praised Cato’s role as an industry pioneer with planned innovations that will “continue to shape the market.” On the other hand, customers expressed frustration with Cato’s pricing model and considered some of its security features – such as SaaS control and firewall for on-premises environments – to be “limited.” CRN wrote.

Cato Networks claims competitive superiority

Cato is optimistic about his performance and prospects. “We announced annual recurring revenue of $200 million in 2024 — double what we had two years ago — and we have 2,500 customers,” Kramer told me.

Cato expects SASE to handle much of cybersecurity. “In five to ten years, SASE will replace the vast majority. We have Fortune 500 customers like Carlsberg using our product across 260 locations, and the company is reaping the benefits of SASE for its 40,000 employees.”

Cato has expanded its security services and announced Cato IoT/OT Security on December 10th. This service will help companies manage and secure the Internet of Things and operational devices, it says The quick mode.

Cato says it wins when it takes on Palo Alto. “Once we have a proof of concept against Palo Alto, we have a 70% win rate. The reason for this is the immediate response from customers, as Cato allows them to achieve so much with such little investment. The time to value creation is fast,” he added.

Palo Alto defends its SASE solution

Palo Alto says its Prisma SASE solution effectively meets customer needs. “Customers are looking for a single provider that delivers consistent, comprehensive security for their modern workplace, protecting all apps, users, devices and data on their network regardless of location,” said a Dec. 4 email from a spokesperson.

“They are looking for a comprehensive SASE solution that delivers best-in-class security, exceptional user experiences, and simplified management and operations. Our Prisma SD-WAN reduces trouble tickets by up to 99%,” the email said.

How Cato Wins SASE Opportunities

In 2023, a billion-dollar manufacturer with 5,000 employees was looking for a SASE provider and chose Cato over the manufacturer’s legacy security provider, Palo Alto Networks, according to a Dec. 11 email from a Cato spokesperson.

Cato won the contract because he got more done for the company faster than Palo Alto. “Cato worked right from the start and connected four locations in just two days,” said the spokesman. “PAN took more than three weeks to connect two sites and required many hours of technical work to make Palo’s portfolio work together.”

Another company that switched from a “legacy SASE provider” praised Cato Networks’ lower costs and praised the company’s new IoT/OT security service. “We believe organizations can benefit from cost efficiencies with Cato IoT/OT Security,” said Chris Simons, Global IT Manager – Infrastructure and Security at Oregon Tool. The fast mode reported.

Will Palo Alto Stock Continue to Rise?

Palo Alto stock could continue to rise. The average price target for Palo Alto Networks from 36 Wall Street analysts is $424.15 – which the sources say represents an upside potential of 7.4% TipRanks.

Wedbush sees significant opportunity as the company’s “platformization efforts are just beginning to gain traction as it generates a more robust pipeline of platformization deals, with cloud penetration still a key driver.”” reported Investopedia.

Palo Alto will benefit from higher customer spending. “We believe the company will benefit significantly from long-term tailwinds in its three key end markets such as cloud migrations, the shift to zero trust security and increasing automation in cybersecurity,” he said morning star Analyst Malik Ahmed Khan.

Meanwhile, Cato could go public next year if market conditions are favorable, Kramer said Intense network.