Nikesh Arora pilots Palo Alto Networks in crowded cybersecurity market
Palo Alto Networks is seeing “notable strength in large customer transactions,” Nikesh Arora, chief executive said in a statement today, while announcing financial results for fiscal year ending July 2021.
The Santa Clara, California based cybersecurity firm sells hardware and software systems to protect digital operations across clouds, networks, and mobile devices. The products are used by more than 84,000 customers in over 150 countries.
Cybersecurity sales are booming in large part due to a spate of hacker and ransomware attacks, including recent ones on government agencies, oil pipelines, and city governments, as well as small companies and large corporations. In fiscal 2021, Palo Alto Network’s revenues rose 25% to $4.3 billion.
Arora, 53, joined Palo Alto as CEO and chairman in 2018. Earlier, he was the chief operating officer of SoftBank Group, the Tokyo-based global conglomerate. Softbank, which has a market value of $95 billion, is run by its Japanese founder Masayoshi Son.
While at Softbank, an anonymous investor group asked the company to investigate Arora over his qualifications, compensation and potential conflicts of interest, since he was also an adviser to a private equity firm. After an investigation, Softbank’s board cleared Arora of any wrongdoing.
Earlier, from 2004 to 2014, Arora worked at Google, including as chief business officer, president of global sales operations and president of Europe, the Middle East and Africa. Prior to Google, he was the chief marketing officer for the T-Mobile International Division of Deutsche Telekom. He was the founder and chief executive officer of T-Motion PLC, when it merged with T-Mobile in 2002.
Arora serves on the board of Compagnie Financière Richemont S.A., a public Switzerland-based luxury goods holding company. He earned an MBA from Northeastern University, Boston, an M.S. in finance from Boston College and a B. Tech. in electrical engineering from Banaras Hindu University. Arora was born in Ghaziabad, Uttar Pradesh. His father was an Indian Air Force officer.
Asheem Chandna board member
In addition to CEO Nikesh Arora, Indian Americans in senior roles at Palo Alto Networks include Asheem Chandna, Amit Singh and Dipak Golechha.
Asheem Chandna, who is a board member, was awarded $296,000 in stock in fiscal 2020. His shares in the company are worth $4 million, while that of Greylock Partners, a venture capital firm where he is a partner, are worth about $40 million.
Founded in 1965, Greylock reportedly manages $3.2 billion in assets. It was an early investor in Facebook, Airbnb, LinkedIn and other major companies. It is also an early investor in Sridhar Ramaswamy’s start-up Neeva, a paid, ad-free rival to Google search.
Chandna, 56, who joined Greylock in 2003, has been an investor and director in over twenty companies. Since he joined the firm, none of his investments have lost money, Chandna told Forbes.
Prior to Greylock, Chandna was vice president of business development and product management at Check Point Software, a cybersecurity firm. During his six plus years tenure, Check Point’s annual revenues grew from $10 million to over $500 million.
Earlier, Chandna was vice president of marketing at CoroNet Systems (acquired by Compuware), where he helped create a product for network monitoring. Previously, he held marketing and product line positions with SynOptics/Bay Networks and AT&T Bell Laboratories.
Chandna is a mentor at Stanford University's StartX student accelerator. He earned B.S. and M.S. degrees in Electrical and Computer Engineering from Case Western Reserve University, Cleveland. Born and raised in India, from 1970 to 1980 he attended the Cathedral and John Connon High School in Mumbai.
Amit Singh, who is Palo Alto Networks chief business officer, focuses on relationships with major customers. Earlier he was at Google, helping to found and build cloud services, and Oracle for 20 years where he held various strategic, sales, and engineering roles. Singh has an M.S. in industrial and management engineering from the Rensselaer Polytechnic Institute, New York, and a bachelor's in electrical engineering from the Delhi College of Engineering.
Dipak Golechha, chief financial officer, earlier worked at Procter & Gamble, as global divisional CFO and COO, and in Chobani and Nature Bounty CFO positions, as well as CEO of Excelligence Learning Corp. He holds bachelor’s and master’s degrees in economics from St. John’s College, Cambridge University.
Palo Alto’s losses and adjusted profits
In fiscal 2020, Palo Alto Networks’ CEO Nikesh Arora was paid a salary and bonus of $2 million. He owns company stock worth $185 million, granted as part of his share-based compensation package.
Founded in 2005, Palo Alto went public in 2012. While its revenues have grown rapidly, it has accumulated losses totaling $1.7 billion. The losses have been funded by debt, which is nearly $4 billion.
In fiscal 2021, the company reported a net loss of $499 million, in accordance with U.S. accounting rules. It also reported an adjusted “profit” of $614 million for the same fiscal year. This outcome was mainly the result of the company excluding $937 million in costs, for share-based compensation to employees, to arrive at the “profit” number. The company “believes that the use of these (adjusted) financial measures and key metrics are useful to investors as an additional tool to evaluate ongoing operating results and trends.”
In 1995, U.S. accounting rule makers included share-based compensation in the calculation of a company’s earnings, after several major investors, including Warren Buffett - with a net worth of $ billion - pushed for this change In his 1992 Berkshire Hathaway chairman’s letter, Buffett stated “For decades, much of the business world has waged war against accounting rulemakers, trying to keep the costs of stock options from being reflected in the profits of the corporations that issue them…If options aren’t a form of compensation, what are they? If compensation isn’t an expense, what is it? And, if expenses shouldn’t go into the calculation of earnings, where in the world should they go?”
Palo Alto Networks faces more than a dozen major competitors. According to Gartner, a research company, competitors include Cisco, whose market value is seven times larger at $247 billion; CrowdStrike, founded in 2011, with a market value of $56 billion; Fortinet, with a market value of $50 billion; and Check Point Software, Palo Alto Network board member and investor Asheem Chandna’s former employer, with a market value of $16 billion.
Yet, Wall Street foresees good business prospects for Palo Alto Networks, giving it a $36 billion market value. Speaking of his company’s competitive position, Arora told CNBC today that “If you buy the best (cybersecurity) products…there is a very high probability that (hackers) will not get through your defense…we have the best products.”
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