2023-07-12 15:47:56 ET
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 cybsecurity 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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Why did Palo Alto Networks stock drop today? Blame Microsoft