Palo Alto Networks Inc: Cybersecurity Stock Becoming a 5G Play?

A New 5G Stock to Consider

Palo Alto Networks Inc (NYSE:PANW) is a familiar name to many tech stock investors. As one of the largest cybersecurity companies in the world, PANW stock has delivered some very impressive returns as the industry has grown in recent years.

And now there’s one more reason for investors to check out Palo Alto stock: 5G.

You see, 5G networks can theoretically deliver up to 100 times faster data transmission speeds and substantially lower latency compared to 4G networks. As a result, things like smart manufacturing, smart cities, remote medical access, self-driving cars, and industrial-scale Internet of Things (IoT) networks could become a reality.

Due to the mission-critical nature of these applications, companies require reliable cybersecurity solutions to protect their investments when deploying 5G applications.

And that’s exactly where the next big opportunity could be for Palo Alto Networks Inc.

In November, the company announced the launch of the industry’s first 5G-native cybersecurity offering. The solution will allow service providers and enterprises to turn 5G networks into highly secure networks. (Source: “Palo Alto Networks Launches Industry’s First 5G-Native Security Offering, Enabling Service Providers and Enterprises to Create New Revenue Streams While Securing 5G,” Palo Alto Networks Inc, November 18, 2020.)

Palo Alto’s new offering includes a number of industry firsts, such as the first containerized 5G security; the first real-time visibility, prevention, and correlation of 5G user/device threats; and the first 5G network slice security.

Because Palo Alto’s 5G-native cybersecurity offering was only recently introduced, it’s yet to be seen how much it will boost the company’s financials. Keep in mind, however, that because 5G adoption is likely a multi-year process, the company’s 5G offering could be a medium- to long-term catalyst for its business.

The best part is that the cybersecurity company has been growing its business at a commendable pace, even without the 5G catalyst.

In the first quarter of Palo Alto Networks’ fiscal year 2021, which ended October 31, 2020, the company generated $946.0 million of total revenue, marking a 23% increase year-over-year. Billings, defined as total revenue plus the change in total deferred revenue, grew 21% year-over-year to $1.1 billion. (Source: “Palo Alto Networks Reports Fiscal First Quarter 2021 Financial Results,” Palo Alto Networks Inc, November 16, 2020.)

At the bottom line, the cybersecurity company earned adjusted net income of $158.1 million, or $1.62 per diluted share, in its first fiscal quarter. This represented a substantial improvement from the $104.8 million, or $1.05 per diluted share, of adjusted profit it generated in the year-ago period.

Regarding the company’s 5G security offering, here’s what Palo Alto Networks’ chairman and chief executive officer, Nikesh Arora, said during the company’s latest earnings conference call:

…we’re the first to introduce 5G network slice security, 5G context-driven security, and much more, all in a containerized solution matching the preferred architecture of 5G. Not only will this allow mobile operators to secure their 5G infrastructure, but it also enabled them to launch value-added security services to their growing enterprise customers who are leveraging 5G for many new used cases.

(Source: “Palo Alto Networks’ (PANW) CEO Nikesh Arora on Q1 2021 Results – Earnings Call Transcript,” Seeking Alpha, November 16, 2020.)

And while we don’t know exactly how much this 5G offering is going to help grow Palo Alto Networks Inc’s business, the company is on track to have a fantastic fiscal 2021.

Management has raised their guidance for the full fiscal year. Previously, they expected Palo Alto Networks to achieve mid-teen year-over-year growth in total billings and high-teen year-over-year growth in total revenue in its fiscal 2021.

Now they’re projecting $5.08 billion to $5.13 billion in total billings and $4.09 billion to $4.14 billion in total revenue for the full fiscal year. That would translate to year-over-year billing and revenue growth rates of 18% to 19% and 20% and 21%, respectively. (Source: “Q1 Fiscal Year 2021 Earnings Call,” Palo Alto Networks Inc, November 16, 2020.)

Palo Alto Networks Inc (NYSE:PANW) Stock Chart

Chart courtesy of StockCharts.com

Analyst Take

At the end of the day, keep in mind that cybersecurity is already a booming industry. And that’s one of the reasons why Palo Alto stock already has a large following in the investment community.

Over the past five years, PANW stock has gone up by more than 110%. And because the company now also deserves the attention of 5G stock investors, the outlook for its shares could be even brighter.