Palo Alto v Check Point - higher growth but lower profit

The market cap of Nir Zuk's Palo Alto is five times that of Check Point but Gil Shwed's company makes bigger profits.

The largest cybersecurity company traded on Wall Street in terms of market cap is Palo Alto Networks (Nasdaq: PANW). Although the company is not incorporated in Israel, it was founded by an Israeli, Nir Zuk, currently CTO, and over the years it has acquired many Israeli companies and has hundreds of employees in Israel, although it is headquartered in Santa Clara, California. Palo Alto Networks most recent acquisition in Israel was last month when it paid $625 million for enterprise browser company Talon Cyber Security.

Palo Alto Networks has grown rapidly and currently has a market cap of $94.4 billion, five times the market cap of Israeli cybersecurity company Check Point Software Technologies Ltd. (Nasdaq: CHKP), the company where Zuk once worked and has enjoyed mocking since.

Palo Alto Network's share price has more than doubled over the past year, jumping 116% to just over $300, just 4% below its peak in the past few weeks. Over the past five years the share price has quadrupled and over the past year has implemented a split, with each share becoming three shares.

Check Point's share price has risen 21.8% over the past year and it is currently trading at a record high with a market cap of $18 billion.

Check Point leads in profit

Two years ago Palo Alto Networks was promoted to the Nasdaq 100 Index, which includes the hundred largest companies traded on Nasdaq, excluding finance companies. Palo Alto Network promotion coincided with Check Point's relegation from the index. At the same time, as a US company, it is also listed on the S&P 500, which comprises the 500 biggest companies traded on Wall Street. Since the start of 2023, Palo Alto Networks share price has significantly outperformed both indices - the Nasdaq 100 has risen 54.3% and the S&P 500 has risen 24.4%.

Despite the impressive jump by Palo Alto Networks share price, its profit is lower than Check Point. In the first quarter of the 2024 fiscal year (ending in October 2023) Palo Alto Networks reported revenue of $1.88 billion, up 20.1% from the corresponding quarter, and net profit of $194 million, up from $20 million in the corresponding quarter of fiscal year 2023.

But in its most recent financial results in the third quarter of 2023, Check Point reported revenue of $596 million, up 3.2% from the corresponding quarter of 2022, and net profit of $205 million. In other words, Check Point is more profitable than in terms of GAAP standards but has much more modest revenue and lower revenue growth.

Left Check Point slamming the door

In 2013, when he was still a relatively unknown entrepreneur on the Israeli business landscape, Nir Zuk was best known for his provocativeness. Palo Alto Networks ran a marketing campaign on billboards along the Ayalon Highway in Tel Aviv mentioning its rival Check Point. The billboard said, "You have just passed Check Point. So have we and we have again been crowned as the leading enterprise firewall."

The justification for this campaign was somewhat obscure - shortly before it launched, Palo Alto Networks had come out ahead in Gartner’s 2013 Enterprise Firewall Magic Quadrant - but other motives lurked below the surface. Fourteen years earlier, Zuk left Check Point, slamming the door behind him, and went on to found Palo Alto Networks in the US as a rival in enterprise network security. Someone in the US company found it important to put up the sign directly in front of the office windows of Check Point CEO Gil Shwed and his thousands of employees, and even pay for it to stay up far longer than usual, just to drive home the point. Zuk has denied any connection to the billboard - apparently it was a surprise prepared for him by the then-VP of Marketing, René Bonvanie - but the Israeli entrepreneur’s reputation was burned into the Israeli tech industry’s collective memory as one of its biggest provocateurs.

This, of course, was not the first time Check Point had been the target of a Zuk provocation. Years earlier, when he was a founding partner in another network security company, Zuk used to drive around Silicon Valley in a BMW with a license plate that read CHKPKLR - "Check Point Killer" - a gift from NetScreen Technologies, which acquired the first startup he founded after Check Point, OneSecure.

Published by Globes, Israel business news - - on December 27, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

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