🛡️ Cybersecurity Earnings
How AI is shaping products and revenue (so far)
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If you've been following our coverage, you know that AI is reshaping the tech world. The most recent earnings season revealed AI tailwinds across all layers of the tech stack, including:
☁️ Cloud: AWS, Azure, Google Cloud.
📱 Applications: Meta Platforms, Salesforce, Adobe.
With AI expanding its software impact, cybersecurity has become one of the most impacted categories, with higher stakes than ever.
Beyond tech, cybersecurity has become a matter of national and economic security. With cyberattacks rising and the cost of data breaches skyrocketing, businesses and governments are scrambling to protect themselves.
Key numbers you should know:
$10 trillion: The global cost of cybercrime in 2024.1
84%: The growth in ransomware attacks in 2023.2
$4.5 million: The average cost of a data breach.3
These figures paint a stark picture of the growing threat landscape. However, this challenge also opens significant opportunities for cybersecurity companies. The demand for innovative solutions to fight cyberattacks has never been higher. AI is a threat (new AI hacks) and an opportunity (new prevention methods), making this field ripe for disruption and innovation.
Let’s look at the most recent earnings of the five largest IT security companies and gauge the recent AI impact on their products, market reach, and revenue growth.
Today at a glance:
Palo Alto Networks: $200M in AI ARR.
CrowdStrike: Beyond the Outage.
Fortinet: AI-driven SecOps.
Zscaler: AI Analytics.
Cloudflare: AI Audit & Marketplace.
Check out our Cybersecurity: Industry Showdown article for comprehensive definitions of cybersecurity acronyms and performance metrics.
1. Palo Alto Networks: $200M in AI ARR
Last quarter, we discussed Palo Alto Networks' challenging year, with a slashed Billings guidance and concerns about deferred payments impacting growth. However, their focus on Next-Gen Security (NGS) offered a glimmer of hope, and AI is playing a critical role in their performance.
Key metrics in Q4 FY24 (ending in July):
Revenue grew 12% Y/Y to $2.2 billion ($40 million beat).
Operating margin was 11% (-2pp Y/Y).
Adjusted Earnings Per Share was $1.51 ($0.10 beat).
Noteworthy items:
Billings bounced back: Billings grew 11% year-over-year to $3.5 billion, signaling a recovery from the earlier guidance cut and easing concerns about a potential slowdown in the cybersecurity market.
Profitability remained strong: The operating margin slightly compressed to 11% in Q4, but the overall trend is excellent, with a 3-point expansion in FY24.
NGS continued to surge: Next-Gen Security (NGS) Annualized Recurring Revenue (ARR) maintained impressive momentum, growing 43% to $4.2 billion. This reinforces the success of their "platformization" strategy, encouraging customers to adopt multiple security products and subscription-based services.
AI is the spark: Palo Alto Networks is aggressively integrating AI across its product suite, with new offerings like AI Access, AI SPM, and AI Runtime Security. Their AI ARR has already surpassed $200 million (roughly 5% of NGS ARR), a 4x year-over-year growth, and is poised to become a significant revenue driver.
Cortex and XSIAM Shine: Cortex ARR exceeded $900 million in FY24, driven by the rapid adoption of Cortex XSIAM. This AI-driven platform helps organizations automate their security operations and significantly reduce the time it takes to detect and respond to threats. XSIAM's rapid growth and customer adoption highlight its potential to transform security operations centers.
Overall: Palo Alto Networks remains a leader in the cybersecurity space. Their strategic focus on NGS, platformization, and AI-powered solutions is driving profitable growth. With an expanding product portfolio, a growing customer base, and a clear vision, management expects Palo Alto to be the first security business to reach $15 billion ARR.
2. CrowdStrike: Beyond the Outage
CrowdStrike experienced a significant IT outage in July, affecting millions of its customers and leading to a guidance cut. Now, with their latest earnings release, we can assess their recovery and the emerging role of AI in the product suite.