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CRWD vs PANW: which is better cybersecurity stock？
As AI becomes more widespread, cybersecurity grows increasingly vital.
Palo Alto Networks (PANW) has long been a top player in the field, while CrowdStrike (CRWD) is the rising star in second place.
But after Palo Alto announced its earnings on Feb 20, 2024, its stock plummeted by 28.44%. Meanwhile, CrowdStrike 's stock soared by 10.76% after the company announced its earnings report on March 5, 2024.
This has brought the companies' market values closer. As of March 15, 2024, Palo Alto's market cap is $92.91 billion, and CrowdStrike 's is $79.47 billion.
With CrowdStrike gaining ground on Palo Alto, the discussion of who is the better cybersecurity stock has become more intriguing.
This article breaks down their products, market positions, future growth potential, and valuation to help you understand both companies better.
CRWD vs PANW: understanding their differences
While CrowdStrike and Palo Alto both operate in the cybersecurity sector, their focus areas differ significantly.
Palo Alto Networks stands out as a representative firewall company. Since its inception, it has concentrated on firewall technology, offering a diverse range of products, including both hardware and software, primarily aimed at securing enterprise IT servers.
With the evolution of technology, Palo Alto has continuously updated its product line, pioneering the concept of next-generation firewalls. These advanced firewalls stand out from traditional ones by incorporating features such as malware detection and analysis services, enabling them to take a proactive defense stance.
Apart from firewalls, Palo Alto has expanded into cloud security and endpoint defense. They've also invested in cloud computing and AI to automate security. They've developed three main platforms: Network Security Platform (Strata), Cloud Security Platform (Prisma), and Security Operations Platform (Cortex), providing comprehensive defense systems for businesses.
On the other hand, CrowdStrike is known for endpoint defense. It operates as a pure-play SaaS software company focused solely on providing endpoint defense solutions, without venturing into firewall businesses or selling hardware.
Endpoint defense addresses the emerging cybersecurity needs in the cloud computing era. With more devices connecting to the internet, they're all potential targets for cyberattacks. So, cybersecurity companies have shifted focus from traditional enterprise servers to PCs, smartphones, IoT devices, and more.
CrowdStrike 's flagship product, Falcon, is known for its security threat intelligence platform. It's lightweight and features proactive defense capabilities.
Being cloud-based, Falcon can be deployed rapidly to up to 100,000 endpoints. This is unlike traditional antivirus software, which needs local deployment, incurring high maintenance costs and slower updates.
CrowdStrike's proactive defense platform uses big data and AI to analyze data and identify potential threats, eliminating them before they become a problem.
These characteristics have made CrowdStrike's products popular in the market. According to The Motley Fool, CrowdStrike's total number of subscription customers jumped from 5,431 at the end of the 2020 fiscal year to 23,019 at the end of the 2023 fiscal year.
Which company has better products?
To figure out which company offers better products, investors can use Gartner's Magic Quadrant model.
This model consists of two dimensions to analyze a company's position in the industry and its competitiveness:
X-axis/Horizontal: Completeness of Vision, which can be understood as technological capabilities.
Y-axis/Vertical: Ability to Execute, which can be simplified as sales prowess.
Based on these dimensions, companies can be categorized into four quadrants representing their position:
Leaders: Executes comparatively well today and is well positioned for tomorrow.
Challengers: Comparatively well today or may dominate a large segment, but does not have a roadmap aligned to Gartner's view of how a market will evolve.
Visionaries: Understands where the market is going or has a vision for changing market rules, but does not yet execute comparatively well or does so inconsistently.
Niche Players: Focuses comparatively successfully on a small segment, or is unfocused and does not out-innovate or outperform others.
In the endpoint defense sector, both CrowdStrike and Palo Alto hold positions as industry leaders. However, CrowdStrike outperforms Palo Alto and other competitors in both Completeness of Vision and Ability to Execute, making it a standout performer, according to the report from Gartner.
It's worth noting that Microsoft is also a strong competitor in the endpoint defense sector, with a position second only to CrowdStrike.
In the enterprise firewall sector, Palo Alto also holds a leadership position. However, its scores are not significantly higher than the other two leaders, Fortinet and Check Point, indicating intense competition among these three companies in the enterprise firewall market.
Which company is growing faster?
Currently, CrowdStrike has a trailing twelve-month (TTM) revenue of $3 billion (revenue for the year ending January 31, 2024), with a compound annual growth rate (CAGR) of 64.95% over the past five years, according to data from FinanceCharts.
On the other hand, Palo Alto's TTM revenue stands at $7.5 billion (revenue for the year ending January 31, 2024), with a CAGR of 23.74% over the past five years, according to data from FinanceCharts.
In terms of revenue scale, Palo Alto is the larger company, more than twice the size of CrowdStrike. However, in terms of growth rate, CrowdStrike is undoubtedly growing faster, with an astonishing 60% compound growth rate over the past five years.
If CrowdStrike maintains this growth rate, it is possible for it to catch up with Palo Alto's revenue scale, or even surpass it, in the future.
Which company has a cheaper valuation?
There are several commonly used valuation methods, such as the Price-to-Earnings ratio (P/E), the Price-to-Book ratio (P/B), and the Price-to-Sales ratio (P/S). Since both Palo Alto and CrowdStrike are growth-oriented companies, we can use the Price-to-Sales ratio (P/S) to gauge whether their stocks are expensive.
Based on the stock prices as of March 18, 2024, Palo Alto's Price-to-Sales ratio (P/S) stands at 12.24, which is higher than the industry average of 10 times.
In contrast, CrowdStrike's valuation is slightly higher, with a P/S ratio of 25.41, also surpassing the industry average of 10 times.
It is evident that while both companies' P/S ratios are higher than the industry average, CrowdStrike's P/S ratio of 25.41 is significantly higher than Palo Alto's 12.24.
Investors are willing to pay a higher premium for CrowdStrike due to its faster growth rate and stronger potential for future growth.
Summary:
Palo Alto and CrowdStrike are both cybersecurity companies, but they focus on different things. Palo Alto deals with firewalls, cloud security, and endpoint defense, offering a range of products including software and hardware. CrowdStrike, on the other hand, focuses mainly on software services for endpoint defense.
According to the Gartner Magic Quadrant model, both CrowdStrike and Palo Alto are leaders in endpoint defense, but CrowdStrike has slightly higher ratings. In the enterprise firewall sector, Palo Alto leads but isn't significantly ahead of other top competitors.
CrowdStrike is growing faster and has the potential to catch up with or even surpass Palo Alto's revenue in the future, given its current growth rate.
Using the Price-to-Sales (P/S) valuation method, CrowdStrike has a higher valuation due to its stronger growth potential.
It's important to note that both Palo Alto and CrowdStrike are growth stocks, meaning their prices may fluctuate more during market downturns. For example, during the bear market in 2022, both companies saw pullbacks. Therefore, investors should conduct thorough analysis and judgment when making investment decisions.
Additional Disclosures: This content is also not a research report and is not intended to serve as the basis for any investment decision. The information contained in this article does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Further, there is no guarantee that any statements, opinions or forecasts provided herein will prove to be correct.