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CyberArk Toe to Toe with Palo Alto in Cybersecurity

Adam Rogers

CyberArk’s 2Q15 Results and Forecasts Are In

(Continued from Prior Part)

Shareholder value

CyberArk (CYBR) and Palo Alto Networks (PANW) are two cybersecurity companies that have seen their stocks rally by over 56% and 92%, respectively, in the last 12 months. By comparison, peer company FireEye (FEYE) has seen its stock price increase by 24% in the same period.

CyberArk locates internal threats that breach a company’s first layer of security, and it mainly focuses on protecting privileged accounts that are accessed by cyber criminals. Palo Alto, on the other hand, has a product that protects businesses from data breaches.

Revenue growth

As seen in the first part of this series, CyberArk’s revenue saw a YoY growth of over 70%, whereas revenues of Palo Alto grew by only 55% YoY and 54% QoQ. CyberArk is one of the few companies in the cybersecurity space that has been profitable in the last few quarters, with a net income that increased by 300% YoY in 2Q15, to $4.9 million. In comparison, Palo Alto reported a GAAP net loss of $45.9 million, or $0.56 per share, in its last quarter, compared to a net loss of $147 million, or $1.96 per share, in the same period last year.

The main explanation for CyberArk’s profitability is that expenses constitute 77% of total revenues, whereas Palo Alto’s expenses stand at 115% of total revenues. As Palo Alto is generating lower profits at a higher cost in comparison to CyberArk, the firm does not have much room to increase expenses.

Valuation multiples

CyberArk and Palo Alto are trading at a PE (price-per-earnings) ratios of 105x and 65x, respectively. By comparison, the S&P 500 is currently trading at a PE ratio of 20x. Investors should take into account that high-multiple stocks are generally impacted the most during market downturns, and so the two companies’ stocks appear to be in the high-risk, high-growth segment.

Analysts expect revenues of CyberArk and Palo Alto to rise by 40% and 50%, respectively, in 2016. The long-term prospects of both firms look positive, as costs of data breaches worldwide are expected to reach $2.1 trillion by 2019, according to Juniper Research.

CyberArk makes up 0.01% of the iShares Russell 1000 Value ETF (IWD) and the iShares Russell Mid-Cap ETF (IWR).

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