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NEWS, ANALYSIS AND PERSPECTIVE FOR SOLUTION PROVIDERS AND TECHNOLOGY INTEGRATORS





NIKESH ARORA: ‘WE’RE SEEING CHANNEL PARTNERS GET VERY SAVVY’

‘There is a bit of an arms race amongst themselves in the channel where the more
qualified people are likely to get more customers to buy from them,’ says Palo
Alto Networks CEO Nikesh Arora.

By Michael Novinson February 22, 2022, 07:14 PM EST
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An “arms race” has broken out within Palo Alto Networks’ channel since customers
are likely to buy emerging technology from the most qualified solution provider.

“We’re seeing channel partners get very savvy and start building adoption teams
and sales teams that are specific to cloud and specific to our portfolio because
they see the market is shifting in that direction,” CEO Nikesh Arora told
investors Tuesday. “There is a bit of an arms race amongst themselves in the
channel where the more qualified people are likely to get more customers to buy
from them.”

Arora said some customers are opting to purchase Palo Alto Networks’ Cortex
security operations products or its Prisma Cloud or SASE tools from a different
solution provider that they use to fulfill their firewall orders. Like virtually
every cybersecurity vendor, Arora said Palo Alto Networks is starting to see
customers buy some of its products on the public cloud marketplaces.

[Related: Palo Alto Networks 18 To 24 Months Ahead Of Cloud Rivals: Nikesh
Arora]

“Almost all cybersecurity products are slowly and steadily being listed on
public cloud marketplaces,” Arora said. “So all of us, including Palo Alto, are
seeing some customers buy on those marketplaces.”

For products like Palo Alto Networks’ embedded native firewall on Google Cloud
Platform, Arora said buying it directly from the marketplace makes sense since
customers can also access and deploy the firewall from said marketplace. In some
cases, Arora said customers are using unused credits on public cloud marketplace
to buy third-party security product since that’s a feature the marketplaces
offer.





But for the most part, Arora said how large enterprises engage with the channel
hasn’t changed. The company last year opened up its Prisma Cloud portfolio for
full resale globally, forgoing a contentious referral-only model for select
products like RedLock cloud threat defense. Making Prisma Cloud available for
resale simplified things from an operational perspective since the channel can
now register all deals.

In November, Palo Alto Networks launched Cortex Extended Detection and Response
(XMDR), allowing partners to combine Cortex XDR with their own managed services
offering to help customers streamline SOC operations and mitigate cyberthreats.
Cortex XMDR launched with four partners and is now up to 27 solution providers,
with a pipeline of interested partners working through the certification
process.

Palo Alto Networks hasn’t seen the double ordering and shadow ordering plaguing
other vendors during the supply chain crisis since the company requires
customers to pay at the time of order, Arora said. Some distributors have
engaged in product stocking where they’ll pre-order common products and hold
onto them to reduce the likelihood of partners and end customers experiencing
product shortages.

But Arora said Palo Alto Networks requires that end customers be listed on every
purchase order and makes purchase orders non-cancellable, which has allowed the
company to avoid distribution stocking.

Palo Alto Networks sales for the quarter ended Jan. 31 jumped to $1.32 billion,
up 29.5 percent from $1.02 billion a year ago. That edged out Seeking Alpha’s
estimate of $1.28 billion.

The company recorded a net loss of $93.5 million, or $0.95 per diluted share,
34.4 percent better than a net loss of $142.3 million, or $142.3 million for
diluted share, the year before. On a non-GAAP basis, net income surged to $185
million, or $1.74 per diluted share, up 20 percent from $154.2 million, or $1.55
per diluted share, last year. That beat Seeking Alpha’s net income projection of
$1.65 per diluted share.

Palo Alto Networks’ stock jumped $33.49 (7.04 percent) to $509 per share in
after-hours trading Tuesday. That’s the highest the company’s stock has traded
since Feb. 17.

Subscription and support revenue for the quarter leapfrogged to $1.01 billion,
up 32.4 percent from $762.2 million last year. Product revenue for the quarter
climbed to $308 million, up 20.9 percent from $254.7 million the year prior.
Sales in the Americas increased by 33 percent in the quarter, according to Chief
Financial Officer Dipak Golechha.

For the fiscal year ending July 31, Palo Alto Networks expected diluted non-GAAP
net income of $7.23 to $7.30 per share on total revenue of $5.425 to $5.475
billion. That beats analyst revenue expectations of $5.39 billion, according to
Seeking Alpha.


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