Brian Feroldi 对 $PANW 的判断变化

We've got Palo Alto. That's the one that I have not. These are two fabulous long-term investments. Both of them have smashed the market going at it in different ways.

I am a shareholder of Crowd Strike. I am not a shareholder of Palo Alto Networks. I put them in the medium category. Th this this is if you understand SAS, they're not purely SAS, but I mean if you understand SAS, you probably get this.

The other the other the other just key thing to note is they were the first cloudnative cyber security company which is going to be important when we compare this to PaloAlto

and I would say this too uh this is not something that is now unique to Crowdstrike like PaloAlto has some of the same things but Crowd Strike was first which means that they've always been the best choice if that's important to you

Um before we move on to Palo Alto Networks, people ask, hey, what software are you guys using? This is called Stock Simplifier. It is software that Stofl and I have built for researching companies uh from scratch.

So, Cyber Security, PaloAlto Networks. Let's go ahead and research this company, which is one that I know much less um about. Now, Brian, I'm just curious. Do you know what happened in early 2026 that caused both of those to go parabolic? I'm just gonna say AI >> me. Yes. But specifically, Mythos was in there, which was the which was the uh anthropic version that had to be held back because it was so powerful. They had to put safeguards around it.

And that's when it just kind of hit everybody that like, oh my god, cyber security is even more important now. Oh, okay. So, um, Daario, the CEO of Anthropic, scaring the crap everybody is good for PaloAlto's business. There you go. And >> make antifragile.

Now, interesting. This is a $300 billion market cap. So, it's bigger than Crowd Strike. It's been around six more years, which is pretty important because they got a lot of they they were there when cyber security became a thing.

16,000 employees. Let's check out the key metrics. Gross margin very similar 73% but operating and net margins are both positive. Look at this though. Free cash flow margin 38%.

All right. Uh balance sheet three billion in cash 300 million in debt. Great balance sheet. growth rate um high not growing as fast teens high teens 26% over the last 10 years high teens over the last more recently free cash flow growing a little bit faster so that operating leverage is kicking in uh valuation 27 times sales 220 times earnings 32 times book and 80 times free cash flow dividend yields no buybacks oh it is paying down debt though so it is returning capital through debt payowns not anything else

PaloAlto Network sells enterprise cyber security and its strategy is to replace a shelf of separate security tools with a few integrated platforms. One platform secured the network, another run security operations and cloud protection and a third added in early 2026 governs identity.

A threat research and incident response arm unit 42 investigate breaches and feeds what it learns back into the product. Okay. Money arrives in three ways. That's a good turn of a phrase. Hardware and software sold once subscriptions to the security services and support contracts.

The subscription and support revenue is recognized across the life of the contract rather than at the moment of the sale, which is what makes the base recurring. Almost nothing is sold direct. Distributors sell to resellers who sell the customer, and the hardware is built by outside manufacturer partners rather than the company's own plants.

Birkhard is pointing out for what it's worth that that identity and access is key for agentic AI. Who is the buyer? The buyer is a corporate security team defending a network, a set of cloud applications, and now a set of AI systems, usually with these tools from several vendors. Large enterprisers carry the business, including almost all of the Fortune 100 alongside service providers who embed security into what they sell in government agencies. What are they buying is consolidation. The company's stated strategy is to fold disparit point products into one integrated system. So, the choice is one architecture against a collection of separately bought tools.

Government buyers weigh one more thing. Selling into a sector depends on certification a vendor much hold to bid on.

Revenue breakdown. Subscription is 54% of revenue growing 19% per year. Support is 27% of revenue growing 9% per year. Product, the least attractive business is only 20%.

Now, when we say least attractive, we should just say the moat is usually lower on product. And the incentive to upgrade is lower on product because it's not automatic. The margins can be better though.

uh subscription is decelerating, support is decelerating, product is holding pretty steady from a growth rate over years. Uh geographic makeup 2/3 US, one-third everywhere else. This is very similar to CrowdStrike. It's almost like a carbon copy of it.

All right. Is revenue predictable? Highly predictable. Four-fifths of revenue is subscription and support and an $18.4 4 billion of contracted obligations is already signed. So they have a backlog.

Can it raise prices? Hardware prices went up because tariffs push costs up, not because the company choose to move them. And buyers have named alternatives they can shop with. So yeah. Okay, somewhat.

Is it recession proof? Definitely. What's their competitive position dominant? Cash margins run about eight points above the comparison group's medium and have stayed at 33%. So it's using cash returns on there anyway.

Business quality five. I I mean it'd be like a 4.5 just because I like it when it's all subscription. Okay. Phase. Okay. Stock simple fire says phase three operating leverage. Why? It's growing revenue. It's profitable and it's reinvesting everything. No buybacks or dividends. So if we look at the trajectory over a longer period of time, both up, both positive. Yes, they're buying back stock, but they're actually diluting and the share count is actually still rising. No dividend. Makes sense to me. Phase three. Interesting enough, both companies are in phase three.

Moat. The only cost of leaving reaches full strength here and nothing else in the business reinforces it, which is why this is a narrow moat. One strong source. Switching costs reach top strength. The other four sit middling or weakest. Returns only half agree. Cast margins beats the comparison group. Reachable within a decade. For larger platform, vendors can bundle security into whatever the buyer already owns.

so Palo Alto hit a speed bump like two years ago on what they called the platform platformization strategy which was what it just set trying to roll up a whole bunch of different things and what they did was they started giving big discounts. The idea was was that we'll give you the discount now you get everything under one umbrella and then we can raise the prices later. But that's not something that Crowd Strikes had to do because and it's not Palo Alto's fault. It's just that Crowd Strike was cloud native and so it was easier for them to do this.

Okay. Uh moat direction one protection is deepening and the other is fading as the model becomes industry standard. So on balance the mo is stable commitments are deepening contracted obligations grew faster. The model is becoming standardized and returns are not expanding. So it says three and four.

Let's dive deeper. How hard is it to switch? The platform runs network traffic, security, and identity. 18.4 billion of contract obligations. So leaving is expensive. The company names it same customers may face real or perceived switching costs when moving to it from a legacy security vendor and its products. Architecture and a tool. Replacing it means replplumbing network traffic, security operations since February 26, the identity layer and all at the same time. And the commitment still deepens. Yeah. To me, I think this is too low. I would say four and four.

Network effect. Okay. A real data flywheel. Malware seen at one customer becomes a protection push to the rest. So shared threat feels generally improved with the size of the base. So this is exactly what Crowd Strike has. It's just that they started doing it later. So they have like they don't have as many connected endpoints.

Customers do not transact with each other and gain nothing from another customer's presence except for the standard shared feed. So there's no marketplace here. That's fine. Every rival runs one too. Crowdfund, Microsoft, Fortnite, and Zcaler all collect telemetry and comparable sales. So no participant or engagement figure shows up. This loop pulling ahead.

Yep. So if I would say it probably makes it so that it's narrow and widening, not wide and widening for network effects. Growth analysis. Analysts expect revenue to grow 24% next year. Consensus up across 50 analysts matching the company guidance. Uh it's faster than the trailing pace. So revenue is growing faster this year.

Acquisitions do the heavy lifting. Cyber Arc and Chronosphere add 338 million in revenue last quarter alone. So the acceleration comes from deals, not organic growth.

Growth went from like 19 to 31% last quarter. And at first you're like, "Wow." But no. Yeah. So that's all or um inorganic inorganic uh growth. So if we look at seven years of data Yeah. Yeah. So earnings are inconsistent. I'm sure there's a whole bunch of um stuff. Yeah. Uh I have a feeling that if we look at this company's financial statements, we're going to see some very hard to analyze numbers. Because of amortization and cost. That's just the the the the downside to being a um an acquirer, a serial acquirer.

But yeah, the growth rate es and flows. Let's just say it it it bobs up and down. While the overall growth is obviously up and very consistently, the growth rate does have some cyclicality to it based on I'm guessing acquisitions and the timing of acquisitions. Is the industry growing? Yes. Can new offerings drive growth? For sure. And they and they have not been shy about acquiring that growth. So definitely good growth potential.

Management eight straight revenue beats in a cash margin well above the comparison group but every year. So revenue beats estimates in all the last quarters and free cash flow margin is very high. So beating on revenue and producing skyhigh free cashful margins while doing it. Dilution is the cost. Diluted shares account went from 500 yeah up 23% over a fiveyear period with stock pay running 13 to 21% revenue. Same thing here. They're they they are not shy about using their currency um to do it.

The biggest bet is untested. Cyber Arc closed on February for 2.21 billion. The largest deal in company history in four months is not a capital allocation track record.

and he founded another company uh Nikesh Aurora. He's been the CEO for eight years. He owns what 1% of the company. He's been at senior roles at Google and SoftBank. He holds $660 million and has run the shift from firewall vendor security platform company.

Do employees like it? 3.8 out of five. Okay, that's actually better than I thought it was going to be given that this is such an inquisitive company. Yep, totally agree. When you have lots of acquisitions, it's very common for employees to go on there and say, "This sucks. Things are changing." So, that's quite good.

Do they beat? Yeah. Let's check execution. I care about revenue execution. Beat 100% revenue beats, 100% earnings beats. That's pretty good. They are diluting as we saw and free cash flow margins are strong. I'm going to go four.

Cool. Execution risk. No exposure here is company life threatening the bar sharing balance sheet carries net cash but channel concentration and unfinished 21 billion deal are real recurring revenue of base absorbs the shocks a balance sheet that cannot fail and elevated real elevated exposures three distributors are 44% of revenue

out of curiosity how do you weigh something like that I don't take away too much because unless Those distributors have their own competing products. Yeah. I mean, so Cisco, Microsoft, and Alphabet, it looks like that that's something to make note of. Maybe that can be like a tiebreaker, if you will.

that that's something to make note of. Maybe that can be like a tiebreaker, if you will. Okay. But nothing huge. Well, concentration risk is a pretty big part of the antifragile framework, and you penalize companies pretty severely. I'm just curious. If you penalize this company, they're not end customers. Okay. So if they're distributors, you're fine. Then we might be having a different conversation. Yeah. So this says moderate. I would say that that's a pretty good assessment. It's hey, this is noteworthy but not concerning. If you penalize this company, they're not end customers.

Is disruption a threat? Same thing with crowd strike. How much is inside their control? Tariffs, soul sourcing chip supplier in Asia and one main contract manufacturer, but that's only on a minority of their revenue. And the financials are pretty good. I'm going to say two. I'm going to say four.

Well, but I will say the other thing though is the unnamed risk which is a breach or a breach existing that we don't know about or or customer doesn't know about. So we can't forget that. And the other side um since the strategy is growth by acquisition that it does add an extra risk of management doesn't overpay, management doesn't make a bad acquisition, all that kind of stuff. So I would say that makes the execution here harder.

I would imagine they're bolt-on to add modules, not needle moving company betting kind of kind of thing. All right, M. We'll go. This is riskier. We'll go riskier. Okay. Valuation.

Palo Alto reads steeply valued right now. PE of 306, price to free cash flow of 80. PE is way higher than normal. Price to free cash flow is way higher than normal. This company was trading at let's say PE 50 times 40 times trailing earnings. Now it's 300 times trailing earnings. Let's go to price to sales to to even that out. So it was down to seven times sales. Now 29 times sales.

Oh my goodness. Yeah. Even before the the breach kind of thing, this is a company trading at 11 times sales. And boy is the stock just taking off. I'm just curious. We go maximum here. The average is 10 times sales. It's It got down to as low as four. Wow. 28.

So, I mean this the normal or sorry, the super expensive for PaloAlto is kind of like the normal for Crowd Strike.

This is a company that quote unquote a has averaged 28 times free cash flow since it cames public. Although it's obviously never trades at 28 times free cash flow. The the number is highly volatile, but let's just say it's pricey right now. You want to do that same reverse DCF?

Let's do it. Okay. So, this one could have slightly better margins. It's more mature. It'll probably get there quicker and it has some on premise. So, I'd say you can do 40 or 41. Okay.

I think we still want to give a 3% terminal growth rate. I think that that's fair. Okay. Uh boy, you know, I wonder if I check how volatile is this stock? Um the answer is Oh, it's actually it's actually quite significantly less volatile.

You you I let's do it let's do it two ways. We'll do the first one with the 10% discount rate. And then for split growth, they're going to average somewhere around 19% per year over the next three years. Acquisitions are part of that. So that makes it tricky.

But when we look at that 25% growth that's necessary, you what you what you need to know is that it hasn't been 25% growth without acquisitions since the tw they have a weird fiscal calendar since 2022 2023. So it's been about three years since they've hit that. So assuming that they're going to be above that for years four through 10 is just as difficult.

It's not quite as egregious to me as crowd strike, but it's still there. I wonder if we pull that discount rate down to 9%. How much does that change it? I mean, a little bit. A little bit.

Yeah. Either way, to get to the numbers that are needed here, acquisitions have got to be a part of the picture, right? Yeah. They they have been historically and again 10 year they've grown their revenue 27% or excuse me their free cash flow their free cash flow has grown 27%. Their revenue has grown a little bit slower than than that but okay I would put that in the range. So to me that that number is high but not impossible.

I give it a two. So we gave a one to to Crowd Strike. I give this a two. Yeah. There you go. Okay. So to review, awesome business in the operating leverage phase. We gave the moes broad and the moat is expanding not as fast as crowd strike. The growth we gave very good, right? Management here was just as good. The risk here is moderate and the the valuation is a little bit a little bit lower.

While we're here, yeah. Well, let me say this. Let's go through the rest of these. But right now, everyone watching, we got thousands of people watching. put if you had to choose between these two, which one you'd put? And I'll I'll I'll see what wins as we as we finish up.

Yeah. One thing that I do want to check, one thing I like to check with companies like this, Palo Alto Networks. Now, their balance sheet was really strong. Um, but I do like to see if we kind of expand everything out here. How much Goodwill does this company have?

Yeah. Yeah. So goodwill is the premium that you paid over the price of a company's fair the fair value of company's assets to make an acquisition. Essentially think of this number as money that was given to shareholders to get deals done in the past. So companies report this as an asset. This is in my opinion the worst asset you can have because it counts as an asset but you get no balance sheet value out of it.

So 21 billion in total assets here. Now, is that number manageable? I mean, yeah, they it's a $300 billion company. Uh, right.

And if we let's take that off. If we take the uh let's take Goodwill off. So, plenty of cash like three billion um in cash cash actually cash and cash equivalents. About three billion in cash and cash equivalents. How are they paying for it?

So, debt is actually >> I mean, it's got to be just shares. Yeah. Yeah, that could be one reason that they are diluting. Let's go ahead and check the cash flow statement. If we expand all, capital expenditures, common stock, well, that's dividend buybacks by other financing activities. The margin is there. Yeah, they have plenty of cash flow. Yeah, it's cur. be curious to see how they are financing their um their their deals. But like you said, I'm sure they're doing I'm sure they're doing quite a bit with um with their with their um with their share count.

If you just look at their share count, >> yeah, I mean how much Yeah, >> that makes sense, right? This is a $300ish billion dollar company and they just made a$20 billion uh purchase. So yeah, this is not all stockbased compensation, right? the the the upticks you see in the share count here are very much acquisitions um acquisitions being made. So the company share count is rising um there but not necessarily by comparison.

I'm going go back to that summary page to me. I'm going to put this also kind of same thing there and I would say let's go ahead and set a price alert. This is a company I do not own. It would have to fall pretty substantially. I'm going to go 300 bucks here. All right.

So, both businesses were excellent. Um, CrowdStrike got a slightly higher average score than Palo Alto Networks did, offsetting that. Palo just got a slightly better valuation.

But Mr. Stoflel, if you had to pick one, which one would you go with? Yeah. Okay. I will choose Palo Alto Networks.

>> Yeah. But I think it is the Yeah. If if like again, not which business do I like better, it's which better company is a better buy. Right now, I would go with PaloAlto Networks. The valuation to me is very high, but given their acquisitions, I think it's actually their growth rates are extremely high, but far more achievable.

Palo Ala has a hardware component to this this business, which >> from a financial perspective tends to be a negative, but from a moat perspective actually can be a net positive in the long term.

I think both of these businesses have tremendous future potential ahead. And as a reminder, CrowdStrike is the one that I actually own, but if I had to choose right now, uh, if I was committing Fresh Capital, I would go with PaloAlto Networks.

>> Now, that doesn't mean you're going to go out and sell it right now and the other does it.