All right. Good morning, everyone, and welcome to the 26th annual Technology Conference. My name is Phil, Philip Winslow, the software analyst here. I think we're gonna need a bigger boat, Nikesh. It's standing room only here.
That's how you create scarcity.
Exactly. Well, the Palo Alto Networks, Nikesh Arora, thank you for coming down, you know, again this year. Always a pleasure to host you. Thank you.
Thank you for having me.
Thank you for your time. I know it's a busy time of year. I mean, I guess the... You know, when I was preparing.
The cycles are elongating.
Exactly. Cycles. We'll just get straight to it. You know, when I was preparing for this, I was actually thinking back, and I was like, you know, gosh, it's, you know, you've just passed your fifth year anniversary.
Four and a half.
Four and a half. Okay. Okay. Well, rounding up. It's like-
Anniversaries are measured in quarters.
Exactly.
I haven't hit 20 quarters yet, so.
It's like.
I'm well aware of that. I get it.
Hopefully we get there. Hopefully we get there.
We will get there.
It's like-
Sure. There will be a 20th quarter.
There will be.
Yes.
Now, if you then reflect back on sort of the years since you assumed this position, can you maybe walk us through what your key initiatives were, you know, how you've addressed those since becoming CEO, and really where we are right now and sort of go forward on the strategy?
First of all, thank you for having me, and I apologize to some of you if this sounds repetitive, but, as a dear friend of mine says, "Repetition does not spoil the prayer.
Good.
I will repeat. Look, cybersecurity, the estimates range anywhere from 5%-10% annual growth for the industry, and that's partially because people spent a lot of money in cybersecurity in the past, but security wasn't as important. Suddenly security is becoming more and more important because of everything you read, every hack you see, every nation-state getting involved. There's a spotlight on security. There is a $1 trillion of security plant out there that is active, approximately, and a lot of that needs to be overhauled, upgraded, renewed as we go forward. As that renewal cycle of that plant happens, you know, technologies have changed. Inflection points have been reached in certain technologies. We had to figure out 4.5 years ago, where do we need to be? Where is the puck going to be for the future?
We took a very active view that the cloud is gonna be big. It didn't take a rocket scientist to figure out the cloud is gonna be big. The cloud being big was not just important for making sure you secure applications going to the cloud. It was also important to see does the cloud offer you alternatives on how to deliver security? Traditionally security was, don't use up too much bandwidth. Security has a 25%-30% cost, inspection cost. It's like you put people at the gate, at the door, everything slows down. Security slows networks down by 25%. You're inspecting Layer 7. That's why a lot of people went with faster, quicker security because they didn't wanna spend 30% more money building bigger networks. That's why today, telecom networks are Layer 4 networks, they're not Layer 7 networks.
Our iPhones, our Android phones are not inspected because they don't really want to spend the extra money inspecting malware on our phones. Malware is rampant in the telecom networks because it's expensive. We took a point of view that, A, cloud is gonna be big, so we have to figure out how to secure the cloud, and it's a lot easier to make sure that the screw-ups of the past don't happen in the future if you focus on new stuff as opposed to overhauling the old stuff. The second view we took was, let's figure out how do we deliver everything through the cloud. We shut down our data centers four and a half years ago. Palo Alto does not run our own data centers. We run on the public cloud.
We run on GCP, we run on AWS, part of it runs on Azure. We deliver all of our services to our customers running on the public cloud. Those are the two big bets we took. You know, then I can go into chapter and verse about the specifics of that, but those are the bets that required us to pay off a lot of technical debt. We have since bought about 15 companies because cybersecurity is one of the most innovative industries in the world. It is because the bad actors are not working on the last thing they used to hack you if you fixed it. You're busy perpetrating a solution across your customer base, they're figuring out maybe new ways to hack you.
That is why there is no single cybersecurity company north of 3% market share in a $180 billion industry. Because by the time we get busy solving the problem which was created yesterday, they're busy creating a new attack vector. We took on the point of view that for us to be a 10% or 20% cybersecurity company, we have to stay relevant, we have to keep focusing on where the puck is going, and we have to make sure we can walk and chew gum at the same time.
Yeah. Exactly. Yeah, that's been amazing. I mean, we're gonna come back to the development and product side and cloud. To what I was saying earlier, okay, the question I've asked everybody, the macro question, I know you're gonna be surprised I'm asking this.
Deal cycles are elongating.
Yes.
Small customers are not spending as much money. Yes. That's true.
That's a quick answer. No, but.
That's true. That's true everywhere.
It's true.
Not just in cybersecurity.
Yeah.
It's true.
In-
...packet software and tax software.
Yeah.
-advertising. It's true everywhere. Go on.
How are you kind of handling, I guess, the macro right now? How are customers' priorities changing? Where are you seeing things that, you know, to your point, like could get pushed or delayed or sales cycles elongated versus what are the areas where people are saying, "Look, I have to invest in Palo Alto now?
Jerome Powell's got a very big hammer. He's using it every. He's probably gonna speak anytime soon, right?
Exactly.
He's gonna use that hammer, and he's gonna try and tame inflation. Who are we, mere CEOs, trying to go take on Jerome Powell, who's got the biggest hammer in the world?
Yeah.
We're not gonna take him on. We're gonna all deal with the consequences. The consequences are slowly and steadily becoming sort of obvious in most of our companies. We're all watching our hiring. Everybody out there announcing this morning, three more companies said, "We're gonna not hire 10% more or get rid of 10% of our people." We're all watching our own P&Ls. Well, guess what? If we're watching our P&Ls, our customers are watching their P&Ls. For the first time, the CFO's job has become more relevant in a long time. For 10 years, it was grow, get out of the way. Now it's let me take a look at that, brother. That's what's happening now. That's called deal cycle elongation.
Deal cycle elongation.
Okay. The CFO wants to pay attention on large deals.
Yeah.
What do you do? You know, it's now you get ahead of it by going to CFO a lot sooner.
Yeah.
Say, "I know you're gonna beat me up, let me come early.
Yeah.
You go do that, you try that, the CFO looks at it and says, "I have three choices. I can agree it, which means I'm not adding value, which is always dangerous." "I can make you split it up into parts," which is called ramping up deals.
Ramp deals.
Right? He'll say, "Okay, do this for now, we'll do the others later." I can say, "We're not gonna do it.
Yeah.
Fourth, I can say, "Let's postpone it.
Yeah.
It doesn't happen in cybersecurity because nobody wants to be the guy or gal who says, "I stopped this project and we got breached." That's not gonna happen. He or she is gonna say, "We're gonna do it. We're gonna do it a little later." Postponements are happening, ramping is happening.
Yeah.
elongation is happening. What do you do? You have to work harder. The question is, will it keep falling neatly into quarters or not?
Yeah.
They're also well aware of the enterprise quarterly cycle, you know? There is no magic thing that happens on January 31st that the CFO has to spend their money with me. It's like, "I'll see you on February 5th, unless you give me a 30% discount.
Yeah.
It depends. It's a game of blink, you know? Do they blink or do we blink? You can, you know, have a funny joke. A semiconductor company tell us, "See you in past your quarter." Just say, "Go pound sand. We're not gonna give you a 30% discount." Which is appropriate for semiconductor.
It is appropriate. I was gonna say, I totally support that.
Right. This is why I'm saying grow your business.
Right.
All that is happening in the market.
Yeah.
Things are tough. You have to work harder. Is it all gonna fall neatly in quarters? Time will tell.
Yeah.
Demand is there.
Yeah.
We have product market fit.
Well, I think you all reacted, I think, a lot earlier than others did to your point about working harder, start the close process earlier, prepare for maybe additional sign offs. I think you all made that pivot a lot earlier than some others did. They're kind of realizing that they needed to make that pivot.
It's not a pivot as much as it's now going to be the new way of doing things.
Yeah.
for the next 12- 15 months. The question is, can you sustain that with your teams? Can you. You will see that. I'm pretty sure you're gonna hear this from every enterprise CEO, because we're currently not as much in fashion as we were about one year ago. We're all gonna have to work harder. We're all gonna have to scrutinize our pipelines. We're all gonna have to get ahead of the deals and talk to our customers much sooner, and we're gonna have to pay attention to opportunities out there. There probably will be more discounting, and there'll be probably more street brawls out there between people who are competing with each other for business.
Yeah.
Which is fine.
Got it. Well, let's spend a few minutes going down sort of just the product portfolio really across it. Let's start first with product. You know, the core business. You expected it to grow about 10% this year. That's obviously, you know, a healthy level above that mid-single digit guidance that you gave through fiscal 2024. At the Analyst Day, what are the puts and takes that you're seeing right now in product growth? Because obviously, there's pricing, there's been supply chain, there's been... hasn't been pre-ordering, et cetera. Just walk us through your thought process on this.
First of all, I have a confession, Phil.
Yeah.
You guys have beaten me. I tried for four and a half years to tell them, stop focusing on 10% of revenue. Focus on the other 90%. For four and a half years, they keep focusing on 10% of my business. Okay, fine. We'll talk about the 10%.
The 10%. Oh, start with that first.
It's really important. Perhaps the only reason you guys like talking about product is because it's what I call instant calories.
Yeah.
I sell, I recognize revenue.
Exactly.
which is, it has a disproportionate impact on the quarter.
I call it revenue heroin.
Revenue heroin.
It really is.
See, this is the funny part. Everybody tells me they're a long-term investor, but they wanna know what's gonna happen next quarter. Long-term trends are very good. The way you measure long-term trends, look at the RPO.
Yeah.
It's growing north of 35%. For all of you math geeks out there, revenue and RPO have to converge at some point in time.
Mm-hmm.
Our revenue growth rate is in the mid-twenties.
Yeah.
Almost 20. It's 24.
Twenty-four.
Right? RPO is at 38%. There will be a convergence at some point in time. RPO will come down, revenue will go up. Think about it that way. We're selling more business than we're servicing. That's what it means.
Yeah.
As long as I'm selling more business than I'm servicing, this is a good thing. If I'm selling less business than I'm servicing, this is a dangerous thing. At some point in time, that convergence will happen. Having said that, think about product. If the CFO... Product is the most susceptible to all the things we talked about.
Yes.
These firewalls are resilient as anything else. They're effectively switches in the long term. You know? You can turn on security from seven years ago, and the CFO can say, "Let's buy this firewall." "Do you have one that's working?" "Yes, it's working." "Is it doing fine?" "Yes, it's doing fine." "Why don't we buy another one six months from now instead of buying it right now?" Product will go through that machination. Now, everybody got excited about product last year. I did not. I self-skept saying product only grows at 5%-8%. You saw industry rates of 20% or 30% from other players because some people did two price hikes. There was a pandemic, there was supply chain crisis, people over-ordered firewalls, there's a lot of puts and takes in the firewall business.
Yes.
All that has to get digested. We didn't increase price. We increased price once because we operate in the top end of the enterprise cycle. All these pricey hikes get negotiated away. Yes. Is the long-term trend of product going to stay at 5%-8%? Yes. Can it possibly gravitate towards a lower end or lower, given everything we're seeing? Yes, but mostly from postponements. We don't see firewalls getting decommissioned yet. What's happening is people are running the data centers, buying firewalls. You know, here's an interesting artifact. I might have shared this with you before. We shut down our data centers. We still bought bigger firewalls internally because we have more internet traffic coming into our campuses.
I still need a firewall when that data comes from AWS, GCP, Azure, so before my people touch it, because I've got to inspect the traffic coming onto my campus. Firewalls are here to stay. Both in hardware form factor and in its technology.
Exactly.
It's like Seagate. They're still around.
They're still here. I mean, that's one of the things to your point that I think people miss. I remember talking to your two RIT folks here at Credit Suisse and the prior bank I was at. When you start to move workloads to the cloud, you're creating north-south traffic, you know, into your, into your campus. They actually bought more, even though there were fewer called workloads behind the firewall, but there was more traffic.
Yeah.
We care about traffic.
The more interesting part is now that there are other technologies, not just firewalls...
Yeah
...IT teams have gotten a lot more relaxed about consolidating firewall vendors.
Yeah
... because they don't need to have 2, which is traditional. The technology, you know, the CIO styles, we need redundancy, so we buy 1 of each.
Yep. Now speaking of other technologies, NGS, I promise you we're only gonna ask 1 question on products.
Sure.
Like so we're moving on now. NGS obviously phenomenal numbers this last quarter, 67% year-over-year growth, Q1 expecting growth 40%-43% this year. I mean, the question I've been getting is sort of how, you know? Because the number is getting big and it's growing rapidly. How are you able to keep this growth rate up at, you know, $2 billion of ARR?
Well, you know, NGS is the collection of all the new capabilities that either protect the cloud or are delivered through the cloud.
Yeah.
Every time we sell cloud security or to a customer which is deploying AWS, GCP, Azure, it goes into NGS. The Dotan deal goes into NGS. When we protect them using Expanse, any Cortex XDR deals goes into NGS. As we upgrade our firewall subscriptions where we can do real-time URL protection or we can do real-time DNS security, it is delivered using the public cloud, it goes into NGS. All these things, we're trying to refactor our entire business to become a subscription business and get delivered from the cloud.
Yeah.
A lot of it is new growth. Some of it is replacement demand, which is coming through people transitioning from on-prem capability to cloud delivered capability.
Got it. Obviously, to your point, it's a collection of tools. I mean, you've got Prisma Cloud, Prisma SASE, Cortex, et cetera in there. How should we think about the mix of the business right now and how do you see-
There's also the new cloud delivered firewall subscriptions.
Exactly. How do you see that just evolving over time? You know, what carries, you know, more weight, has sort of more longer term growth potential?
Phil, we were talking outside. The more metrics I give you, the more you're gonna ask me about it the next time. If I start telling you.
No, you can just tell me, though. It's okay.
I've heard those sweet words from analysts before.
Exactly.
They tell somebody else, and they tell somebody else.
Yeah. It's like us friends here.
It's a healthy mix across the portfolio, approximately proportionately. That allows us the flexibility of not having to blink.
Yeah.
If we tell you NGS is growing, sometimes a customer says, "Give me this deal or I won't get it done." I'm saying, "Don't worry about it. I'll go something else. Let me sell something else in the meantime.
Yeah.
You're gonna need this." Because part of the art here is to make sure we maintain the profitability of the NGS business.
Yeah
Grow the profitability of the NGS business. We like the portfolio approach. You know, some things worked a lot better than the others, and that happens every quarter. When you look at it from the end, at the end of the year, they all seem to balance out.
Balance out. Let's focus on Prisma SASE for a second. This is one of my favorite metrics, speaking of metrics.
Yeah
... that you give. This last quarter was roughly 30% of new Prisma SASE customers were new to Palo Alto, at Palo Alto Networks, which is higher than the 20%-25% that it used to be in the early days of Prisma Access. You know, what's causing Prisma SASE to do so well with new logos, and
not do so well with new logos. Why is it only 30%?
Why is it only 30?
It's all depends. Look, it's a part of the evolution of the category. The category and, you know, this is my perspective, I'm sure people have different perspectives. True SASE competes are only happening with two and a half vendors in the market. One that's been around for a very long time, one which is kind of in private mode, and one is us. When we started this journey about 3 years ago, we actually had a real product in the market. We had to convince customers that we have a real SASE product, and the easiest customers to convince are your existing customers because they have experienced your capabilities, your services. There's a contiguous nature of services that work on our firewalls that work in SASE.
Yeah.
A customer says, "Yes, I want Zero Trust security, and the way I achieve that is by having the same capability that I have on my firewalls on my SASE implementation." By logic, your easiest to convince customers are your own customers, which means you can't convince new customers. When you build a portfolio of large existing customers and you can showcase them to new people and say, "Aha, you guys do this stuff. Clearly, if a large consulting company has chosen to deploy you, or a large aircraft manufacturing company has chosen to deploy you, this must be good." They go talk to their CLOs. The guy says, "Yeah, this thing stands on its own legs," you can get new customers. I think it's pretty consistent with how you'd expect.
Yeah
us to build category, you know, participation for now. Think about it versus the third guy in the place. They don't have a route to market where you... SASE gets very interesting in large customers.
Yes.
Right? Because our SASE deals can range anywhere from $15 million-$30 million.
Yeah.
It's hard to get a $30 million firewall deal that will require to sell about 1,000 firewalls.
Yeah.
there's nobody out there buying 1,000 firewalls right now to replace everything because they're busy moving to the cloud.
Yep.
It's a very interesting category. It's something that we're focused on. It's something where we're probably in now 60% SASE deals at any point in time going down, going in the market. Those numbers were obviously smaller in the past. Our aspiration is to get to 100% of them in the market and hopefully can win one out of two.
Yeah. One of the things with Prisma SASE that you noted too, I think this was 2 quarters ago, that you had this, a $7 million competitive appliance replacement, but extending back in from having won them as a SASE customer, that then turned into a massive on-premise appliance replacement. How much opportunity is there to backfill, let's say, when you won that new logo, in the cloud, but then somebody wants to then consolidate on you, backfill, so to speak, on premise?
Yeah, it's a great question. Look, what happens is security products are extremely complicated.
Yeah.
We spend our lives making them more and more complicated. It's part of the Perpetual Employment Act. We make them more complicated because security is complicated.
Yeah.
What happens in SASE is when they do a new buy, they actually want to deploy many of the capabilities. They actually have enough firewalls, they actually never deployed.
Yeah.
The good news is they wake up and say, "Oh, wow, this is cool. I need to go do all these protective things." They go deploy them, and they go back and say, "Wait, I don't have that working exactly the same way in my data center on my campus. Can I do that then?" Of course, you can. What do I need to do? You have everything running. You have the pane of glass running. You have the services running. You just need to put a box. It's like, great. All I do is go put Palo Alto boxes, and this thing will just automatically go work everywhere we don't have it? Yes, it will. It is, for us, a huge sort of land. In SASE, we can land SASE and expand the firewalls.
In the past, we've been practicing landing in firewalls, trying to expand to SASE. We were late to the party, but, you know, it's never too late.
That's what I was gonna say. I was like, you still were on the dance floor pretty fast. It's the. One of the things that you brought up, too, is the shift to cloud, the bet that you made on cloud, just from your perspective. If you think about just the SASE market, it seems to be split right now between people that sort of maintain their own POPs, their own networks, you know, so Zscaler, Netskope, et cetera, and those that leverage the hyper-hyperscalers such as yourselves, as you just mentioned. You know, can you walk us through your view of, you know, why leveraging hyperscalers is sort of the optimal architecture, the right decision that was made, and sort of the competitive differentiation that it brings?
Sure. I spent 10 years at Google. I think any company south of $10 billion of revenue-
Mm-hmm.
Also, if you're not a tech company, will eventually shut down 90% of their data centers. That's my point of view. The reason I believe that is because what do you really mean by you run your own POPs? You actually don't.
No.
My friend, you know, at Equinix runs them all.
Yes.
Right? You've got a closet.
Yes.
Which is yours.
Yes.
Then they do all the work. That closet is yours, that's your capacity. The only problem is you can't share the next closet because it's somebody else's. In the case of Google, Amazon, Microsoft, you can share the entire data center because they will move capacity for how you need it. To give you example, in our case, when a customer walks up and says, "Oops, the pandemic's hit. I need to spike capacity from 30,000 users to 100,000 users," I don't do anything.
Yeah.
Google has enough capacity to go let them ramp. Do I wanna go lease fiber? Do I wanna go build data centers? Do I wanna hire 800 DevOps people to run a specialized security backhaul network which is not specialized at all?
No.
It's already available, it's commoditized. You debate, the only difference is perhaps I pay 2, 300, 400 basis points more than what it would cost to go build it. My quality and my risk of failure...
Yes.
goes down so much. I think people need to understand in SASE the biggest difference, SASE is not a security capability only. It is security and network. I go from selling you a firewall where it's your problem to I take your traffic over. When somebody uses SASE and they log in using the laptop here, and you happen to use Prisma Access, I'm carrying your network, I'm carrying your traffic.
Exactly.
Which is a big responsibility. Can I carry the traffic for 10,000 customers out there, including the Fortune 100 companies out there, without being the best network capability out there and the best data security ability?
Yeah.
It's hard. If a cable gets cut somewhere and a data center goes down, I could take down a thousand companies that are Global 2000. I don't wanna have the responsibility unless I am an expert at running networks and running data centers. This is all cottage industry right now. This will all transform. There was a cable cut not too long ago.
Yeah.
A few months ago. If that happens three more times, these, I won't call it the mom and pop.
Exactly.
These self-made POP customers or companies, if they start, you know, getting impacted by that or their capacity gets impacted, we'll see. I'm very happy to pay 2 to 500 basis points extra until this thing splits apart.
Yeah. We were having a conversation with a, with a big customer, and they brought that up. They said, "Okay, if I go to one of these other vendors, I'm solely relying on them. With Palo Alto, though, if Google goes down, you shift over to AWS.
Yeah. We do a hot shift.
Something happens to AWS, it goes here.
We move you from GCP to AWS if we need to.
Exactly.
If they both go down, then we should all have a problem.
Yeah.
We probably won't be using our laptop. Yes.
There's other problems. There are probably other problems if all the clouds go down. There's something really bad happening.
If I can't shop and I can't search, who cares if I can log on?
What are we gonna do? I'm sorry. What are we gonna do then? All right. Let's move on to Cortex now. Obviously, you know, a timely discussion as we were talking about in the hallway. Now, your Cortex business is obviously continues to do very well. You know, over 50% year customer growth that you announced in Q4. This is despite this space being, you know, very competitive here, i.e. CrowdStrike, so on.
It's actually becoming less and less competitive, believe it or not.
Yeah. It's actually true. There is some... We were talking about that last night, too. There's some pleasant out there, but-
We had a lot of conversations last night.
It's all good.
Very, very good.
Well, we were there late. There was a lot of talking going on. If you think about What differentiates Palo Alto when you think about Cortex? Why are you winning deals versus some of these other players?
You know, first and foremost, if you look at MITRE, if you look at the tech evaluations out there, our product is top two, right? Technically, there is no issue. Our product works. It's as good as every other product in the market. Some people were there faster from a go-to-market perspective, and they've done phenomenal from an execution perspective. If you look at the landscape, you know, it used to be a Symantec, McAfee market.
Yeah.
We saw Cylance show up, CrowdStrike, Carbon Black. Who am I missing? Cybereason.
Cybereason. Yeah.
I think two or three of these are for sale right now.
Yeah.
SentinelOne. you've gone from a 9- 10-player market. I think it consolidates to, again, to 2.5 player market.
Mm-hmm.
Maybe three. You've got Microsoft, don't forget. They also have an XDR product. A market that goes from ten to three, I'm happy. I was not a player.
Yeah.
Being one of 3 is much better than being one of 10.
Exactly.
I see this goodness happens.
Yeah.
Now, again, the leverage we're getting from that is, Palo Alto customers already have a lot of firewall data that they ingest from our firewalls.
Yeah.
We are now able to show them the correlation of Palo Alto firewall data with the XDR data, which is, you know, if you're a security professional, is magic.
Yeah.
That's the customers who want to buy from us. We have recently launched, as you know, XSIAM.
Yeah.
Which I think over time, the XDR capability gets commoditized.
Yeah.
All the focus is gonna be how do I take all of that in my SOC and manage my SOC?
Manage.
I think the next bastion in security is the re-imagination of what ArcSight, LogRhythm, Splunk, Exabeam, JASK all these people do. Sumo Logic, all the people.
Yeah. Yeah.
I think XDR moves into that space, and that's where we decided.
you layer on like SIEM.
Layer our play.
...on top of that too.
Yes.
Yes.
All right. Now, okay, Prisma Cloud, this is actually have been one of my favorite areas of yours. Obviously, the customer pace continues to grow robustly. I think credits consumed were up 55% year-over-year last quarter. Good customer count, good usage, obviously. Walk us through, you know, what is driving this. What are the puts and takes? Obviously, we've seen some of the cloud providers talk about seeing a slowdown in consumption, but you didn't see a change in credit consumption.
It's a timing thing, right? There is more cloud sold every quarter than cloud consumed.
Yeah.
40-plus thousand salespeople for AWS, GCP, Azure sell a lot of public cloud. Not every customer is deploying them. If you go and look at the, I think it's the liability section of their balance sheets, you'll find a lot of liability associated with unconsumed public cloud. It's for tens of billions of dollars. All that means is that customers have forward bought credits on Google, Amazon, Microsoft. We only get paid when people actually deploy. There's a lag. There's tons of cloud that needs to be still deployed. It's already paid for.
Yeah.
As that gets deployed, our credit consumption will go up. That's one part. The other part of it is not every customer is up to speed on the need for cloud security. I think, plus, you know, we still haven't gotten to $1 billion, and these guys are talking about $300 million-$400 million.
Yeah.
This is a 2%-5% security business should be. I think this is a Should be at this point in time that everybody was using it, and every credit was deployed, and everybody was perfect, there should be a $68 billion market in public cloud security. It's probably $1 billion. There's a lot of execution needed to get to the $6 billion-$8 billion to work. That $6 billion-$8 billion, okay, it's not growing at 40%, it's growing at 30%. You know what?
Yeah.
I'll take a 30% growth of $400 billion.
It still works.
That's the number.
It still works.
It still works. I just want 2% of the 120. I don't want the 2%. I want a third of the 2% because the cloud provider has to keep the other two-thirds.
All right.
It's a big market.
Big market. Let's talk, last couple minutes here about just go-to-market because your sales and marketing investment has been pretty consistent. You know, grew mid-20s last year, off to a similar rate start of this year. How are you thinking about just sales and marketing, investments in fiscal 2023? You know, particularly some of your peers, particularly the private ones in fact, are maybe seeing some headcount reductions.
We'll talk about what peer means, but it's a different conversation.
It's different.
Challenges. We'll call them challenges.
No, look, you're saying that people are watching their headcount in cybersecurity.
Yes.
I'll take that. Are we.
Yeah.
We're trying to make sure that our sales... The other pivot we made as part of inspecting harder is we had guided to improving our profitability by 150 basis points over 3 years. We were gonna up the guidance. We've upped the guidance, we're gonna do it faster. We are paying attention to cost, and the cost leverage is coming from more and more cloud consumed. Cost leverage is coming from running a much more efficient organization. It's coming from converging network security. You know, when you're, when you undertake a transformation of a company, you've got to figure it out that you serialize the effort. Otherwise, people like me and my management team will drown.
If you serialize in tech, the first thing is if you have issues with your product or your product's about to get obsolete or you're not playing among all the players in the industry, that's where you should focus. A lot of my focus, our management team's focus in the first 2.5 years was in getting product right.
Yeah.
Which we did, hopefully. You gotta make sure that you have a team that can sell that product, and you do that in parallel. Suite sold product. It kind of worked. We got NGS to work. You go back and say, "Well, how do I run this more efficiently because I really need four different salespeople to sell to one customer?" You start consolidating where it makes sense, which is why we did network security. We are overhauling our IT system and processes to see how can we drive more efficiency. We're in the phase of making our go-to-market and customer support capabilities more efficient and optimized.
Yeah.
Which is where you get a lot of leverage from a profitability perspective. We're on a path to keep driving more efficiency and scale out of our business. You know, the street estimate's around $7 billion. You can start thinking about efficiency.
Exactly.
You can't think about efficiency at $1 billion.
True.
You're focused on growth, although this market doesn't seem to like growth anymore.
Exactly. It's like maybe it'll be back one day.
Yeah.
You know, we started this conversation looking back in the past, you know, four and a half years since you became CEO. Let's say we're set up on stage 5 years from now. By the way, hope we're coming back over the next 5 years. Don't come back only in 5 years. Feel free to come in between.
Yes.
What do you think you're gonna look back on and say, "Hey, this technology, this trend, or this product, let's say, was more transformative to Palo Alto's customers than people were giving it credit for in 2022?
I don't think it's gonna be product specific.
Mm-hmm.
I think the old security paradigm, when you have 40 security vendors in your infrastructure, and you were running it and stitching it together because you had an IT team, those days are over. Guess what? All the 1,600 customers-Who were attacked and who are undergoing ransomware negotiations, they all had security teams. They all had 40 vendors. Their old models aren't working. The interesting phenomena is they had no alternative.
Yeah.
People keep telling me, "Oh, they don't wanna buy from one vendor because they wanna have best of breed." There wasn't a vendor that gave you anything but best of breed.
Yeah.
We are now the alternative. We walk in and say, "Listen, I can take care of those 10 things for you. I can make it all work together. You wanna take a bet on me?
Yeah.
You know, statistically true that one person will take the bet, the other won't. I'll just take 50% of the market. I'm okay with that. I think the next five years. The opportunity is in front of us. It depends on whether we can execute effectively and make sure we convince each of our customers one at a time that consolidating across the Palo Alto portfolio is a better security outcome for them.
Yeah.
That's what we're working on. It won't be one particular technology, it will be everything that we have and the conviction that I'd rather stick with Palo Alto because they're evergreen.
Yeah.
They take the opportunity, take the challenge in the market, they go find a solution, they make sure it's good. Think about it, we talked about nine XDR vendors.
Yeah.
Guess what? Every customer who is about to be part of, you know, a chip company's security stack is trying to figure out, how do I replace my security stack 'cause I don't want that security stack going somewhere. The risk of going with too many startups and private companies is they get sold to not so good other companies sometimes.
Suitors, yes.
You wanna make sure you have a cybersecurity strategy which is consistent. What we're trying to do is not just have the products, but also build a reputation in the market with the CIOs and CSOs that if you go with Palo Alto, these guys are gonna be around for a long time. They will innovate and they will solve my security problem. 'Cause that is what makes it go, makes it go.
I'm not sure if you saw the LinkedIn post. It was a VC put up there. It was about. It was, you know, what to do if you're a, you know, essentially a startup in cybersecurity.
Oh yeah, I saw that. Yes, yes.
Palo Alto is this shining castle on the hill.
Sell to Palo Alto.
It's like.
rest in peace.
It's like-
VIP, yes.
Yeah.
Become a VIP at Palo Alto.
Exactly.
Yes, I've seen that.
Exactly. It's funny as hell. Walter's got a lot of stuff to do. It's like the shining city on the hill. Nikesh, you know, thank you for coming down here. Walter, thank you for coming as well. Appreciate your time. I know it's a busy season of selling, so I appreciate you coming down.
Thank you. Thank you very much.
Awesome. Thank you, everyone.