Nikesh Arora on Why Palo Alto Networks Is Buying Talon, DigM&A Will Help Palo Alto Broaden Cloud Security Portfolio, Protect Unmanaged Devices
Palo Alto Networks will spent nearly $670 million buying Talon and Dig to broaden its cloud security portfolio and protect unmanaged devices without affecting usability.
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The Silicon Valley-based platform security behemoth said purchasing Tel Aviv, Israel-based Talon Cyber Security for $435 million will help safeguard the 36% of the workforce that's "independent," meaning they often use unmanaged devices for work and access business apps with personal technology. Palo Alto CEO Nikesh Arora said most SASE or remote access offerings don't protect independent workers (see: Palo Alto Networks to Buy Enterprise Browser Startup Talon).
"We have always maintained that we're going to sustain M&A at a level close a $1 billion dollars a year," Arora told investors in an earnings call Wednesday. "We're focused on making sure we make our platform more robust."
Arora said the company often heard from customers that remote browser isolation wasn't covering all their use cases, while many mobile phones don't offer security management despite being a frequent initial access vector. To enable access from personal devices, he said, teams either had to ignore security entirely in favor of flexibility or adopt cumbersome technologies such as virtual desktop infrastructure.
"Customers were asking, 'What is my solution?'" Arora said. "What we didn't want them to do is to have to deploy yet another independent solution, which is disconnected from our overall SASE capability."
Palo Alto Networks felt Talon had the best technology in the emerging enterprise browser category, and Arora said the timing was good since they were about to raise more funding to support an explosion in demand. Arora said combining Talon and Prisma SASE will allow users to securely access business apps from any device - including mobile and noncorporate devices - with a seamless user experience.
"We're going to keep our cautious approach toward eating what we can digest."
– Nikesh Arora, chairman and CEO, Palo Alto Networks
The acquisition is expected to close by the end of January, and Palo Alto Networks will integrate Talon into Prisma Access to extend its capabilities more broadly to unmanaged devices. Although it's highly unusual for Palo Alto Networks to announce two acquisitions in two weeks, Arora said it shouldn't pose any issues since Talon and Dig are on different platforms with different teams tasked with integration.
"We're going to keep our cautious approach toward eating what we can digest," Arora said. "You shouldn't expect anything that is off the regular pattern."
Digging Into Data Security Posture Management
Arora said the proposed $232 million buy of data security posture management startup Dig Security fits squarely within Palo Alto Networks' track record of making $150 million to $250 million acquisitions in the cloud security space to add capabilities as the market evolves. This includes the firm's $198.3 million purchase of application security firm Cider Security in December 2022, which was the most recent deal before Dig (see: Palo Alto Networks to Buy Data Defense Startup Dig Security).
The need for DSPM on Prisma Cloud is driven by the adoption of generative AI, the sprawl of new cloud data services and almost 70% of organizations having data stored in the public cloud, Arora said. As a result, he said, Palo Alto Networks needed to better identity sensitive data, manage user access and implement security measures to prevent unauthorized internal and external access to data in the cloud.
Integrating Dig into Prisma Cloud will provide near real-time data threat protection from code to cloud, according to Arora. He said the first wave of cloud security purchases by customers is very module-driven, and specific individuals in the customer's security organization are looking for cloud security posture management, static composition analysis or cloud network application protection platform tools.
"There are different people in the customer's organization who are responsible for different pieces of the cloud security pie, and they're trying to look for best of breed. It's kind of like replicating what happened in enterprise security," Arora said. "But as soon as they start putting big deployments at scale of any kind, they have to start having a platform."
Arora said large software-as-a-service companies need a cloud security platform since it's not realistic for them to stitch eight or more disparate tools together. One large SaaS company spent $18 million in the last fiscal quarter to standardize on Palo Alto Networks' Prisma Cloud, according to Arora.
At the beginning, Arora anticipates some customers will opt for cloud security modules from Palo Alto Networks while other customers will choose cloud security modules from a different vendor. But eventually, customers will need to adopt a single platform for cloud security so their different products can effectively communicate with one another, Arora said.
"We're focusing on platforms today," Arora said.
|Palo Alto Networks||Quarter Ended Oct. 31, 2023||Quarter Ended Oct. 31, 2022||Change|
|Subscription and Support Revenue||$1.54B||$1.23B||24.6%|
|Diluted Earnings Per Share||$0.56||$0.06||833%|
|Non-GAAP Net Income||$466.3M||$266.4M||75%|
|Non-GAAP Diluted Earnings Per Share||$1.38||$0.83||66.3%|
Palo Alto Networks' revenue of $1.88 billion in the quarter ended Oct. 31 beat Seeking Alpha's sales estimate of $1.84 billion. And the company's non-GAAP earnings of $1.38 per share crushed Seeking Alpha's non-GAAP estimate of $1.16 per share.
The company's stock is down $15.18 - 5.93% - to $241 per share in after-hours trading Wednesday. That's the lowest Palo Alto Networks' stock has traded since Nov. 6. Palo Alto Networks grew revenue by 20% in the Americas; 19% in Europe, the Middle East and Africa, or EMEA; and 23% in Asia-Pacific, or APAC; said Chief Financial Officer Dipak Golechha.
For the quarter ending Jan. 31, 2024, Palo Alto Network expects diluted non-GAAP net income of $1.29 to $1.31 per share on revenue of between $1.955 billion and $1.985 billion. Analysts had been expecting non-GAAP earnings of $1.25 per share on sales of $1.97 billion, according to Seeking Alpha.