Zscaler, Cloudflare Growth Still Solid

Cloud Zscaler, Cloudflare Growth Still Solid R. Scott Raynovich Contributor Opinions expressed by Forbes Contributors are their own. R.

Scott Raynovich is the Founder and Chief Analyst at Futuriom. com Following New! Follow this author to stay notified about their latest stories. Got it! Sep 28, 2022, 09:56am EDT | New! Click on the conversation bubble to join the conversation Got it! Share to Facebook Share to Twitter Share to Linkedin The network security space is one of the more interesting areas to track, with many large, quality technology companies looking to build products to sate the perennial demand for network security.

The recent Q2 earnings seasons sheds some new light on the competitive positioning of companies providing enterprise network and cloud security products. Public cybersecurity companies are of particular interest to investors, as many of then have produced robust returns over the past few years. However, with the markets under pressure and technology slowdowns coming into focus, there may soon be a reckoning for some of these stocks.

Building with logo for ZScaler in the Silicon Valley, Santa Clara, California, January 3, 2021. . .

. [+] (Photo by Smith Collection/Gado/Getty Images) Gado via Getty Images We recently took a deep dive into the recent earnings trends to track the competitors in this dynamic space. It’s chock-full of big players, including cloud network security players such as Zscaler and Cloudflare; firewall vendors such as Fortinet, Palo Alto Networks, and Check Point; and traditional networking vendors such as Cisco and Juniper who have expanded into network security with acquisitions and product expansions.

Zscaler and Cloudflare Lead Cloud Security So who’s winning? Judging by the numbers in the second quarter of 2022, Zscaler had the edge in the Q2 earnings race, with growth that pleasantly surprised the market and investors and boosted its stock price. The company reported revenue of $318. 1 million, an increase of 61% year-over-year.

It reported a GAAP (Generally Accepted Accounting Principles) loss from operations was $82. 5 million, or 26% of total revenue, compared to $67. 4 million, or 34% of total revenue, in the fourth quarter of fiscal 2021.

But that loss reflects investments in the business, so cash flow might be a better way to track its progress. Cash provided by operations was $103. 1 million, or 32% of revenue, compared to $44.

7 million, or 23% of revenue, in the fourth quarter of fiscal 2021. Zscaler emerged quickly in the startup market before its Initial Public Offering (IPO) in 2018 with a Secure Web Gateway (SWG) built entirely in the cloud. Enterprises sought this cloud-based offering to protect employees from hitting malware and unsafe websites when accessing Internet and cloud applications.

But recently, Zscaler has seen success in expanding its portfolio into areas such as Cloud-native applications protection platform (CNAPP) and zero-trust network access (ZTNA), with its Zero Trust Exchange. MORE FOR YOU Western Digital’s Journey To Build Business Resiliency Through Cloud And ERP Transformation Amazon Climate Pledge: Two Years In And Going Strong Microsoft Takes First Steps To Finally Kill The Password There’s a theme here: Cybersecurity players with strong cloud-native products and networks can expand the services offerings in the cloud, bundle them together, and provide customers with one place to buy several cloud security products. This is the answer that customers are looking for, as Futuriom research with cybersecurity end users has shown that they would like to buy more integrated functionality and feature from fewer vendors, as there are too many cybersecurity products on the market.

Along the same lines, Cloudflare is also a monster in the space with a cloud-based architecture In its Q2 2022 results, it reported $234. 5 million in revenue, an increase of 54% year-over-year. The GAAP loss from operations was $64.

5 million, or 27. 5% of total revenue, compared to $28. 9 million, or 18.

9% of total revenue, in the second quarter of 2021. Net cash flow from operating activities was $38. 3 million, compared to $7.

5 million for the second quarter of 2021. Cloudflare Co-Founder and CEO Matthew Prince said the company added 212 large new customers in the quarter paying the company more than $100,000 per year, giving it a total of 1,749 over this threshold. Prince said one of the themes of the quarter was consolidating customers who were buying products from several vendors.

This has been supported by Cloudflare’s steady expansion of product features. In one example, Prince said a Fortune 500 retailer signed a $1 million deal to use Cloudflare’s application firewall, content delivery network, bot management system, and other forms of protection. Prince said this will be a key differentiator as he sees the technology markets weakening.

“Given our visibility early into the economic downturn, we rapidly adjusted our go-to-market message. We shifted our messaging to focus on ROI, helping customers save money, and consolidating spend from multiple point solution vendors behind Cloudflare’s broad platform. ” Cisco’s Back, and Fortinet and Palo Alto Are Solid Growth across other companies in the network security market did not come in at the eye-popping level of Zscaler or Cloudflare, but it was solid.

For example, Okta’s identity security services grew 43% y/y; while firewall vendors Fortinet, Palo Alto, and Check Point came in with 29%, 27%, and 9% growth y/yr, respectively. Cisco showed solid growth of 19% y/y Akamai reported y/y security growth of 17%. See the chart below for the full results.

Zscaler had the largest growth in Q2 Futuriom. com Some other notable players, such as Juniper Networks and VMware, are more difficult to track because they do not break out their security revenue separately. Juniper Networks continued to make progress on the integration of its on-premises and cloud networking cybersecurity products, with a transition to a cloud-based model.

Although Juniper does not break out its security portfolio, the company has resumed the growth track with y/y revenue growth of 8%. Cisco’s security revenues, meanwhile, bounced back with strong growth after showing slower growth in prior quarters. In its fiscal fourth quarter 2022 release in August, Cisco reported that its end-to-end security division had record revenue with growth of 20% y/y.

Cisco’s Zero Trust portfolio, which includes the Duo Security acquisition, continues to perform well, said Cisco Chief Financial Officer Scott Herren. Cisco’s security efforts are key to the company’s overall effort to transition from hardware-based revenue to software subscriptions with annual recurring revenue (ARR). “We continue to make progress on our transformation to more software and subscription-based recurring revenue,” said Cisco CEO Chuck Robbins on the fiscal Q4 earnings call.

“ARR of approximately $23 billion was up 8% with product ARR increasing by 13%. ” Meanwhile, traditional firewall vendors Fortinet and Palo Alto have also shown strong growth, with respective y/y revenue growth of 29% and 27%, respectively. Reviewing these results, it’s evident that cybersecurity companies with cloud-based architectures still hold an edge, as Zscaler and Cloudflare have demonstrated with the expansion of their portfolios.

A second trend is integration of product portfolios. The companies that can best integrate their security offerings with the most value for customers will continue to the do the best. Follow me on Twitter .

Check out my website or some of my other work here . R. Scott Raynovich Editorial Standards Print Reprints & Permissions.