Is Palo Alto Networks Making Money from Cloud Security?

Palo Alto Networks (NYSE: PANW) share price shows Mr. Market loves cloud security companies.

Notably, Mr. Market paid $304.29 for Palo Alto Networks’ (PAN) on 4 December 2020 and $235.41 on 2 January 2020. Therefore, investors think the cloud is the future of investing and computing.

To elaborate, Palo Alto’s products include Prisma Cloud 2.0 which they call the only comprehensive native security platform. In addition, Palo Alto offers the Cortex XDR threat detection and response solution.

They claim Palo Alto Networks Enterprise DLP (data loss prevention) service is the most comprehensive cloud-delivered DLP service. Palo Alto they can enable its DLP throughout the enterprise in minutes with zero-update delays.

Palo Alto has acquired Expanse Inc. an attack surface management company. Expanse’s internet collection and attribution platform constantly monitors the global internet and identifies exposed and untracked assets, a press release claims.

Can Palo Alto Networks Profit from Coronavirus?

Demand for services such as Expanse’s is growing because coronavirus drives more people to work remotely. For example, Palo Alto claims oilfield services firm Schlumberger’s (NYSE: SLB) remote work force grew by 220% in a few days.  

Remote work was growing dramatically before the coronavirus pandemic. Flexjobs estimates the number of remote workers grew by 159% between 2005 and 2017. In addition, Flexjobs estimates grew by 44% between 2015 and 2020 and 91% between 2010 and 2020.

I believe Palo Alto Networks (PANW) can profit from coronavirus because remote work increases security risks. For example, a person working from home could use an unsecure network or server.

How Palo Alto Networks can Profit from Remote Work?

Many organizations, however, will have to use that unsecure network or server because they need the employees’ skills or services.

For example, a company will need to use whatever internet connection its chief financial officer (CFO) has at her house. The company will need to reach the CFO to pay the company’s bills and approve the payroll. In most companies, the CFO has to approve major expenditures.

Hence, many organizations face the horrendous choice of shut down or operate under a security threat. Thus, the situation is a hackers’ dream and a Chief Intelligence Officer’s nightmare.

Under these circumstances, many organizations need to organize their cloud security fast. Palo Alto Networks (PAN) offers products that could upgrade cloud security fast.

 Cloud Security Threats Grow

Cloud Security Threats were exploding before coronavirus. Global intelligence firm IDC estimates that 79% of companies surveyed experienced a cloud data breach in the 18 months before June 2020.

Moreover, 43% of companies reported 10 or more cloud-security breaches in the same period, Security Magazine claims. Thus, cloud-security breaches were an enormous problem before coronavirus.

I think growing remote work will increase the number of cloud-security threats. In addition, the top cloud-security priorities for companies are compliance monitoring 78%, authorization and permission management 75%, and security configuration management, 73%, IDC reports.

I think Palo Alto products such as the Enterprise DLP and Expanse offer those services. In addition, companies’ top cloud access security priorities are confidentiality of sensitive data 66%, integrating security solutions, and lack of security 39%.

Thus, many managers realize cloud-security is a problem and are searching for solutions. Palo Alto Networks is providing those solutions.

Does Palo Alto Networks Make Money?

Palo Alto Networks (PANW) loses money. The company reported a quarterly operating income of -$17.80 million on 31 July 2020.

Conversely, Palo Alto Networks reported a quarterly gross profit of $660 million and quarterly revenues of $960.40 million on the same day. The quarterly gross profit and quarterly revenues fell from $583.60 million and $816.70 million on 31 January 2020.

On the other hand, Palo Alto Networks reported a quarterly operating cash flow of $333.70 million on 31 July 2020. Conversely, Palo Alto reported a quarterly ending cash flow of 1.472 billion on 31 July 2020.

Unfortunately, Palo Alto Networks borrows enormous amounts of money to finance its operations. Palo Alto reported a quarterly financing cash flow of $1.806 billion on 31 July 2020.

What Value Does Palo Alto Networks have?

Palo Alto Networks (NYSE: PANW) had some value in the form of $3.747 billion in cash and short-term investments on 31 July 2020.

Plus Palo Alto Networks had $9.065 billion in total assets on 31 July 2020. The Total Assets grew from $7.184 billion on 31 January 2020. Thus, Palo Alto added close to $2 billion in total assets in 2020.

I think Mr. Market overvalued Palo Alto Networks at $293.76 on 1 December 2020. I see nothing in Palo Alto’s financial numbers that justifies that share price.

I believe investors need to avoid Palo Alto Networks because it pays no dividend, loses money, and Mr. Market overprices it. Yes, cloud-security is a growing field, but Palo Alto Networks is not making money from cloud-security.