Zscaler Vs Palo Alto Networks

Palo Alto Networks (NASDAQ: PANW)

Shares of Palo Alto Networks were up 6.4% during after-hours trading on Tuesday as the cybersecurity company announced better-than-expected Q2 results. Palo Alto Networks’ total revenue advanced 30% year-over-year to $1.32 billion and came in marginally better than analyst estimates of $1.28 billion.

The company primarily earns its revenues through the sales of its products like firewall appliances and software, centralized security management solutions like Panorama, and through subscription and support offerings.

When it comes to fiscal Q2, the company’s total billings for the quarter rose 32% year-over-year to $1.6 billion and Remaining Performance Obligation (RPO) advanced 36% to $6.3 billion. PANW defines “billings as total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period.”

Nikesh Arora, Chairman, and CEO of Palo Alto Networks, commented, “In Q2, our company continued to benefit from strength across our three security platforms, driven by strong cybersecurity demand, organizations architecting for hybrid work and growing their hyperscale cloud footprints. On the back of this strength, notably in our next-generation security offerings, we are raising our guidance for the year across revenue, billings, and earnings per share.”

The company’s management underlined some key trends underpinning its growth on its Q2 earnings call. This included strong demand for cybersecurity services, and the importance of cybersecurity amid an evolving threat landscape.

As a result, for the third quarter, the company anticipates revenues to come in between $1.345 and $1.365 billion, a year-over-year growth rate of between 25% and 27%. Adjusted earnings are projected to come in between $1.65 and $1.68 per share.

Baird analyst Jonathan B. Ruykhaver was positive about Palo Alto Network’s Q2 results, and its expanding product portfolio that can address a wide variety of use cases. The company has built its cybersecurity portfolio based on acquisitions. The three pillars of PANW’s cybersecurity portfolio include Prisma, Cortex, and Strata.

Indeed, the company’s management reinforced this on its fiscal Q2 earnings call, “With a growing portfolio of products across three platforms, making large deals selling a repeatable process is core to our sustaining and accelerated growth trajectory.”

Other factors that the analyst was upbeat about included PANW’s broad network of channel partners and its strong marketing presence. What’s more, Ruykhaver’s channel feedback indicates that there is a positive sentiment in the market regarding the company’s product capabilities.

As a result, the analyst has a Buy rating and a price target of $625 (31.4% upside) on the stock.

Other analysts on the Street, are also bullish about this stock with a Strong Buy consensus rating. This rating is based on 11 Buys and 1 Hold. At the time of writing, the average PANW stock prediction was $633.17, which implies upside potential of approximately 33.2% to current levels for this stock.

Zscaler (NASDAQ: ZS)

Cybersecurity company Zscaler’s comprehensive portfolio of solutions includes secure access to the Internet and software-as-a-service (SaaS) with Zscaler Internet Access (ZIA). Other solutions include management of the user-to-application experience with Zscaler digital experience (ZDX), and secure access to internal applications with Zscaler private access (ZPA).

Zscaler is expected to announce its fiscal Q2 results on February 24. In fiscal Q2, the company anticipates revenues to range between $240 million and $242 million, a year-over-year growth rate ranging between 53% and 54%.

Jay Chaudhry, Chairman, and CEO of Zscaler, commented, “CISOs [Chief Information Security Officer] and CIOs [Chief Information Officers] are looking to phase out legacy network security in favor of zero trust architecture, due to increasing cyber and ransomware risks and accelerating digital transformation. This architecture shift continues to drive strong demand for our Zero Trust Exchange platform.”

Considering this strong demand, Needham analyst Alex Henderson views ZS as, “Uniquely positioned to deliver this capability and is bulking up its sales organization to drive adoption and customer conversion.”

Moreover, for Q2, the company has guided for adjusted earnings of around $0.11 per share. Henderson thinks that Zscaler’s adjusted EPS guidance could have solid upside as the analyst expects that the company will continue to invest aggressively with sales capacity growth in excess of 50%. As a result, Henderson expects revenues and gross margin to have significant upside.

Moreover, the analyst thinks that ZS has exceptional long-term value potential and believes that the company can grow annually between 25% and 50% over an extended period, and achieve an operating margin ranging from 20% to 30% over the long term.

As a result, Henderson is bullish on the stock with a Buy rating and a price target of $418 (64% upside) on the stock.

Other analysts on the Street, however, are cautiously optimistic about this stock with a Moderate Buy consensus rating. This rating is based on 21 Buys, 4 Holds, and 2 Sells. At the time of writing, the average Zscaler stock prediction was $371.96, which implies upside potential of approximately 46% to current levels for this stock.

Bottom Line

While analysts are bullish about PANW, they are cautiously optimistic about Zscaler. Based on the upside potential over the next 12 months, Zscaler seems to be a better Buy.