Here's Why Palo Alto Networks Is Better Than FireEyeFEYE), which is off considerably from its 52-week highs, fell almost 20% yesterday after reporting bleak quarterly report. Investors need to be very careful when choosing a stock in this space. Since the companies are focusing on growing market share, they spend more money than they generate, which is why stocks in the sector are very volatile.
Nowadays, demand for cyber security facilities is speeding up because of continuously rising data breaches all over the world.
On the other hand, research firm Markets and Markets predicts that the worldwide cyber security market will reach $170.2 billion by 2020, a surge of $63.9 billion as compared to that in 2015. Despite the growth prospect, some major cyber security firms emaciated in 2015 mainly due to issues regarding valuations, rivalry, and profitability. FireEye and Palo Alto Networks (PANW) are two such stocks, as both the companies are down around 30 percent and 14 percent respectively this year.
Both the companies have robust records of double-digit sales growth. In the most recent quarter, Palo Alto’s top-line surged 54 percent to $335 million equated to 54 percent growth in Q2FY15, whereas FireEye’s top-line surged 29 percent, down abruptly from 150 percent growth in Q1FY15. These figures clearly specify that Palo Alto has much sturdier sales growth and impending demand as compared to FireEye.
Apart from this, on a GAAP basis, FireEye or Palo Alto Networks both are non-profitable, but on a non-GAAP basis, Palo Alto’s net income surged 115 percent yearly to $36.3 million in the previous quarter. However, FireEye is not profitable on non-GAAP basis also. Palo Alto’s and FireEye’s stock-based compensation represents 76 percent and 28 percent jump respectively equated to previous year quarter. As a result, Palo Alto certainly defeats FireEye mainly because of positive non-GAAP bottom-line growth.
Moreover, both the companies face robust rivalry from tech giant Cisco (CSCO) downgrading their services with bundled security assistances. However, both FireEye and Palo Alto Networks have best in class status in threat prevention solutions and next generation firewalls. While Palo Alto Networks is performing well, FireEye’s sales growth and its earnings are decelerating.
The cyber security sector is too risky, but Palo Alto Network is still taking giant leaps forward. Investors looking to invest in this growing sector should pick Palo Alto Networks.
Published on May 9, 2016By Yaggyaseni Mittra