Palo Alto Networks Faces Revenue Growth Slowdown Amid Shifting Cybersecurity Spending Patterns

After years of hypergrowth, Palo Alto Networks’ (PANW) revenue growth has been slowing, suggesting major shifts in cybersecurity spending patterns and raising investor concerns about the cybersecurity giant’s long-term growth potential.

Even as overall cybersecurity spending is predicted to remain strong, Palo Alto’s revenue growth has dropped to roughly half of the 30% growth rate investors have enjoyed for the last several years. Those concerns came to a head in February, when Palo Alto’s stock plunged 28% in a single day after the company slashed its growth outlook amid a move to “platformization,” with the company essentially giving away some products in hopes of luring more customers to its broader platform.

Investor caution continued yesterday after the company merely reaffirmed its financial guidance, suggesting the possibility of a longer road back to hypergrowth. Fortinet (FTNT), Palo Alto’s long-term network security rival, is also struggling amid cybersecurity market uncertainty, as analysts expect the company’s growth rate to slow from greater than 30% to around 10%.

The changes in cybersecurity spending patterns show up most clearly in SIEM market consolidation and AI cybersecurity tools. Buyers may be waiting to see what cybersecurity vendors do with AI, and Palo Alto CEO Nikesh Arora told analysts that he expects the company “will be first to market with capabilities to protect the range of our customers’ AI security needs.”

Seismic changes in the SIEM market are another sign of a rapidly changing cybersecurity landscape, with Cisco’s acquisition of Splunk in March being just the start of major consolidation among legacy SIEM vendors. Palo Alto’s acquisition of QRadar assets from IBM and the transition of QRadar customers to its Cortex XSIAM next-gen security operations platform, incorporating IBM’s watsonx large language models, signals a significant shift in the threat detection and response market.

While the moves may yet be enough to return Palo Alto to better-than-expected growth, one data point on Monday’s earnings call suggests buyers may be cautious. Arora noted that “we have initiated way more conversations in our platformization than we expected,” with a 30% increase in meetings and a majority centered on platform opportunities. It remains to be seen if sales will follow the same growth trajectory as meetings, but it’s clear that even as the overall cybersecurity market remains strong, the undercurrents suggest rapid changes in where that money is going.

Source – The Cyber Express