Predicting Cybersecurity Stock Performers: Will Palo Alto or CrowdStrike Outshine in 2025?
2024 brought a rollercoaster ride for cybersecurity heavyweights CrowdStrike and Palo Alto Networks, with stock fluctuations, strategic shifts, and high-profile incidents keeping investors on their toes. Despite the challenges, both companies managed to finish the year in the green, leaving investors pondering their potential performance in 2025.
Both companies experienced substantial stock price drops at various points throughout the year. In late February, Palo Alto Networks encountered a hurdle when it disclosed "spending fatigue" among its customers, who sought better returns on their cybersecurity investments. The company realized that the multiple point solutions from various vendors weren't delivering much additional value.
In response, Palo Alto decided to reshape its strategy, moving away from point solutions and focusing on positioning customers onto its broader cybersecurity platforms. To accelerate this shift, Palo Alto opted to provide additional services to customers for free for an allocated time frame. This move aimed to curb the payment for redundant solutions and incentivize customers to consolidate onto its platforms with the free service offerings while their contracts were still in effect with other cybersecurity providers.
CrowdStrike's stock also took a hit later in the year due to an unsuccessful update that led to a worldwide outage of its cybersecurity platform, impacting numerous industry operations, including Delta Air Lines. Although CrowdStrike managed to retain most of its clients, the outage impacted its sales cycle and led to increased scrutiny, resulting in lowered guidance and the introduction of customer commitment packages.
After their declines, both companies managed to recover significantly. Palo Alto Networks has been progressing well with its platform strategy, reporting 6% annual recurring revenue growth from its platformized customers and projecting a sizable rise in this client base by 2030. CrowdStrike has also seen minimal churn as a result of the outage, with a 97% gross retention rate. The company seems to be exploring its outage as an opportunity for upselling, offering additional modules and Flex dollars to its customers.
Examining their valuations, Palo Alto Networks currently trades at 13 times this year's estimates on a price-to-sales (P/S) basis, while CrowdStrike commands a multiple of 21 times next year's fiscal estimates. Despite the considerable valuation gap, CrowdStrike reported a 29% revenue growth last quarter compared to Palo Alto's 14% increase before its strategy shift. Given these facts, I'm inclined to favor CrowdStrike as the more attractive stock for 2025.
Although the outage incident was a significant hurdle, CrowdStrike's Falcon platform continues to rank as a top cybersecurity solution. The combination of AI driven technology with impressive growth rates offers plenty of upsell opportunities as companies continue their shift towards consolidating their cybersecurity platforms.
At the end of the day, while both companies display robust growth prospects and integrate AI into their cybersecurity solutions, the choice between them ultimately depends on individual investment preferences and risk tolerance in the ever-evolving cybersecurity landscape.
- The challenging year in finance for both CrowdStrike and Palo Alto Networks led investors to consider their potential performance in the stock market by 2025.
- Palo Alto Networks addressed its customer's "spending fatigue" by shifting its strategy away from point solutions and offering free additional services to promote consolidation onto its broader platforms.
- Despite the worldwide outage of its platform causing CrowdStrike to introduce customer commitment packages, the company reported minimal churn and a 29% revenue growth last quarter, making it an attractive stock for 2025.
- In the pursuit of consolidating cybersecurity platforms, CrowdStrike's Falcon solution, combining AI technology with impressive growth rates, provides numerous upsell opportunities for 2025.
