Why did Palo Alto Networks stock drop today? Blame Microsoft
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Palo Alto Networks (NASDAQ:PANW) shares fell more than 6% on Wednesday after Microsoft (NASDAQ:MSFT) announced late on Tuesday a secure service edge offering amid a deeper push into network security.
Morgan Stanley analyst Hamza Fodderwala said the secure service edge offering is potentially the "largest and last" major cybersecurity market that the Redmond, Washington-based tech giant has yet to enter.
Fodderwala added that Microsoft's (MSFT) offerings of Microsoft Entra Internet Access (for web and SaaS apps) and Entra Private Access (for private and internal apps) puts it squarely against companies like Palo Alto Networks (PANW), Zscaler (ZS) and Cloudflare (NET).
UBS analyst Roger Boyd said that while the two new solutions are a "negative" for the aforementioned companies, along with privately-held Netskope, it's also a sign that the opportunity for the security edge market is validated.
"Initial adoption traction by leaders Zscaler and Palo has been enterprise heavy - the two have a combined ~10k customers and ARPC for both companies is well above $100k (ZS at $200k+)," Boyd wrote in an investor note.
Boyd added that Microsoft's (MSFT) "broad exposure" with roughly 1M security customers gives the Satya Nadella-led company "an advantage in becoming the market leader down-market, where neither ZS or PANW have significant exposure today."
However, companies with small and medium-sized business exposure, such as Cisco (CSCO) and Cloudflare (NET), have greater near-term risk from Microsoft's (MSFT) move, while it could "complicate" Fortinet's (FTNT) push into secure access service edge, Boy posited.
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