Thread by @convequity

1/15. $PANW: There are lots of #cloudsecurity startups competing w/ PANW, & also several next-gen platform startups (e.g., Orca, Lacework, Wiz).

We think PANW will still prevail as the undisputed cloud security giant. Here are some thoughts why.

2/15. At a high-level we surmise $PANW’s previous and future successes in the cloud are due to their:

a) longstanding expertise in DPI & application-centric awareness/security.
b) container management knowhow that has been largely influenced by $GOOGL recruits.
c) smart M&A.

3/15. One major advantage that firewall vendors like $PANW have is Deep Packet Inspection (DPI) & doing this at real-time speed. This entails inspecting the header & payload of each packet - from Layer 2 thru 7 of the OSI model.

4/15. Expertise in DPI is at the core of, or enables, so many other security solutions, such as:

5/15.

DDoS protection
IDS/IPS
Traffìc prioritization
DLP
Baseline + anomaly behaviours,
SWG
Granular app access controls
Antivirus
ML-powered NGFWs

6/15. So $PANW has this elite 1st principles understanding of security which has enabled them to expand into so many diff areas.

We surmise this is why their M&A is v. successful. They can buy startups in other areas but infuse this 1st principle mindset to make it synergistic.

7/15. In essence security is about inspecting every bit & byte. And $PANW does this across the OSI layers and are the best at it. Hence this skillset is very transferable to other sec areas.

8/15. What gives $PANW an edge over other NGFW vendors, however, is their application-centric awareness & security. They’ve always had the lead on this & this root has been fruitful for them in the cloud, especially w/ microsegmentation.

9/15. At the core of cloud security are the containers, & PANW has hands-down the best technology and talent in regards to this, substantially thanks to their roots back to GOOGL - a company that probably has the best sources of container management tech & talent pools available.

10/15. This container expertise is well demonstrated by PANW releasing the industry’s first containerized NGFW in 2020 – something that hasn’t been emulated by rivals 2 years later and counting.

11/15. So, we believe PANW’s deep 1st principles understanding of security coupled with container knowhow is a great comp advantage for them to become the number 1 winner in cloud security.

12/15. Then the icing on the cake is the slick M&A strategy that entails buying the best startups, empowering the founders to push forth their own visions, & then massively leveraging the skillset of $PANW’s excellent S&M teams.

13/15. In 2.5 years, $PANW spent $2.5bn in 9 acquisitions for #PrismaCloud & Cortex platforms, & based on current growth we surmise the incremental revenue will likely have covered this by next year, w/ FCF recouping the entire investment in another 3-7 years. Not bad $PANW team.

14/15. It’s a great strategy & totally against conventional notion of too much M&A is bad. It’s impossible to build in-house for every security need that is popping up in the highly dynamic cloud.

15/15. So, in this case the best way to provide value to the market & shareholders is to acquire, integrate, synergize, & improve > thus lowering TCO, increasing ROI, & giving CISOs & SOCs less headaches, & and making stronger security postures.

To sum up, as an investor the last 3 yrs should give confidence that $PANW is agile enough to make more key acquisitions to fill emerging gaps & ensure it can generate substantial value for shareholders.

For more on $PANW check out our Substack convequity.substack.com