Check Point's cash cushion stands it in good stead

Gil Shwed

Steep falls in Palo Alto Network's share price have put its market cap level with that of Check Point.

Cybersecurity companies have not escaped recent misfortunes on Wall Street. Like other sectors, these companies have been affected by the coronavirus. Even now, however, some share prices are falling more than others, and there are some that appear less vulnerable. Palo Alto's share price sank 9.5% yesterday, and has tumbled 45% in the past four weeks. The share price of Check Point Software Technologies Ltd. (Nasdaq: CHKP) was down only 2.9% yesterday, and 22% in the past four weeks. Among other cybersecurity companies, Israeli company CyberArk's share price is down 37% in recent weeks, Fortinet has fallen by a similar rate, and FireEye has loss almost half its value during this time.

As a result of the more precipitous drop in Palo Alto Network's share price than in that of Check Point, both companies now have a market cap close to $13.5 billion, after a long period in which Palo Alto Networks was in the ascendancy. Only a few weeks ago, Palo Alto Networks' market cap was $6 billion higher than that of Check Point.

The rivalry between the two companies is not confined to business competition over the cybersecurity market. Palo Alto Networks founder and CTO Nir Zuk formerly worked at Check Point. Ever since leaving Check Point to found a new company, he has not ceased to attack it. As recently as a month ago, Zuk told "Globes," "I wouldn't have hired most of its employees. There are amazing companies in cybersecurity in Israel, but this isn't one of them." On the same occasion, asked about the difference in approach between the two companies, with Check Point growing slowly and making a large profit, while Palo Alto Networks was growing rapidly, but had substantially lower profit margins. Zuk responded, "We're the largest company in the $100 billion cybersecurity market, but our market share is still very small - only 3-4%. In this situation, the right thing to do is to invest in growth and getting market share. I see no logic in Check Point losing market share and still emphasizing profit."

Check Point's cash cushion beckons to investors

This may account for the difference in the two shares' returns in recent weeks. The crisis is casting a shadow of uncertainty over investors, who are less worried about holding shares in a company with a substantial profit, a large pile of cash, and no debt. Check Point finished 2019 with nearly $2 billion in revenue, 4.1% more than in 2018, an $826 million GAAP net profit, and a $933 million non-GAAP net profit. It had $3.9 billion in cash as of the end of 2019.

Palo Alto Networks had far great growth and revenue than Check Point. It finished its 2019 fiscal year (ending in July 2019) with $2.9 billion in revenue, 27.5% more than in the preceding year. At the same time, it made an $81.9 million net loss according to GAAP rules, not a profit. Excluding various accounting items, headed by stock-based compensation for employees, Palo Alto Networks' non-GAAP net profit was $539 million. Its 2019 non-GAAP net profit amounted to 18.6% of turnover, compared with 46.8% for Check Point.

At the end of its most recent quarter (which ended in January 2020), Palo Alto Networks had $3.1 billion in cash, and its long-term debt to holders of its convertible bonds was $1.46 billion. Both companies used their cash balances to make recent acquisitions, including of Israeli startups, although the acquisitions by Check Point, always more conservative in such matters, were on a smaller scale.

Published by Globes, Israel business news - en.globes.co.il - on March 17, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

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