Cost-cutting customers are coming to us in tough economy

Palo Alto Networks is seeing tailwinds from customers looking to slash costs in the worsening economy, CEO Nikesh Arora said Thursday.

“The silver lining in the current environment is that we’re having more consolidation conversations —because suddenly, the number one priority in addition to being secure is: ‘Can you help me do that without me increasing costs?'” he told Jim Cramer.

Brewing macroeconomic uncertainty driven by persistent inflation, the Federal Reserve’s interest rate increases, Russia’s invasion of Ukraine and Covid shutdowns in China have forced companies across industries to cut costs by implementing layoffs, hiring freezes and reducing other expenses.  

The cybersecurity company, whose stock is in the Bullpen for Cramer’s Charitable Trust, reported better-than-expected fiscal first-quarter revenue and per-share earnings Thursday after the bell. Shares of Palo Alto Networks were up nearly 7% in extended trading after dipping initially on the report’s release. In Friday’s trading, the stock shot up more than 7%.

Calling companies’ prioritization of streamlining cash outflows a “magic bullet” for Palo Alto Networks, Arora also emphasized that customers are becoming more discerning with their spending.

“You go in there and say, ‘Listen, I can replace seven vendors for you. I can get you to a better security outcome. And I can do it at a lower cost,” he said, adding, “we’ve got to increase the activity and the focus that we need to have in the market and hope that our better execution can help us right the macro trends that we’re seeing.”