Check Point Finally Enters SD-WAN Space With Organic ProductCEO Gil Shwed Says Building Rather Than Buying SD-WAN Provides Tighter Integrations
Check Point has at last introduced an SD-WAN offering that supports more than 1,000 applications and is tightly integrated into the company's network security stack.
"I hope that our SD-WAN product will reach the market success that it deserves."
– Gil Shwed, founder and CEO, Check Point Software
The debut of Quantum SD-WAN makes Check Point Software the last major firewall vendor to enter the SD-WAN space, coming years after Cisco, Fortinet and Palo Alto Networks built or bought their way into this critical market. CEO Gil Shwed says Quantum SD-WAN integrates into the company's firewalls rather than sitting separately and can therefore leverage the company's deep application analysis capabilities (see: Check Point CEO Gil Shwed on Why Prevention Beats Detection).
"I hope that our SD-WAN product will reach the market success that it deserves," Shwed tells investors Monday. "I think many of our customers are waiting for it."
Check Point will have a lot of catching up to do around SD-WAN, since Gartner already recognizes Cisco, Fortinet and Palo Alto Networks as leaders in the market. In contrast, Check Point wasn't even among the 14 vendors evaluated as part of Gartner's SD-WAN Magic Quadrant in September (see: Fortinet, VMware, Cisco Drive SD-WAN Gartner Magic Quadrant).
Cisco and Fortinet were the world's two largest SD-WAN vendors in 2021, while Palo Alto Networks sits outside the top five in market share, market research firm Dell'Oro Group said in March. Fortinet built its SD-WAN capabilities organically by leveraging the company's proprietary ASIC chip, while Cisco spent $1.81 billion to acquire Meraki and Viptela, and Palo Alto Networks bought CloudGenix for $420 million.
'Today, SD-WAN Solutions Are Still Complicated'
Shwed says Check Point nearly executed an SD-WAN acquisition in the past but ultimately walked away from the deal due to concerns over the quality of the technology. By organically developing its own SD-WAN blade, Shwed says Check Point can ensure a tight integration with both the company's firewalls as well as its networking code.
"Buying an SD-WAN vendor and integrating it might have taken longer and might not have necessarily generated better results after all," Shwed says.
It typically takes between three and six months for a new technology to meaningfully contribute to Check Point's overall revenue, and Shwed expects a similar situation with Quantum SD-WAN. On the positive side, Shwed says there's pent-up demand for the technology, and many customers are already using Quantum SD-WAN through the company's early access program.
But Shwed says SD-WAN takes longer to roll out than most other security technologies since it needs to be installed across many branch offices rather than in just a single, central location. While many vendors are pushing for Secure Access Service Edge solutions that customers can consume from the cloud, Shwed says on-site deployments typically offer better performance, latency and economics.
"Today, SD-WAN solutions are still complicated," Shwed says, "and we think niche because there are some important vendors, but it's not as widely spread as it should be. And we haven't found the solution that will really be the silver bullet."
More broadly, Shwed says, identifying transformative acquisition opportunities has been difficult since most publicly traded security companies lose tons of money while valuations in the private market haven't fallen as far as their public counterparts. The only company to publicly disclose a lower valuation is Snyk, which cut its valuation by 13% from $8.5 billion in September 2021 to $7.4 billion in December.
Check Point between October 2018 and August 2021 carried out six significant acquisitions, including the $175 million purchase of cloud infrastructure security and compliance vendor Dome9 as well as the buy of cloud email and collaboration defense vendor Avanan, Crunchbase found. But over the past 18 months, Check Point hasn't made a single major acquisition, according to Crunchbase (see: Check Point Pursues More Business Outside Network Security).
"It's not that we are not active on the M&A front," Shwed says. "But I think in the future, there's definitely an opportunity that we will do more."
Subscription Sales Grow Double Digits
|Category||Q4 2022||Q4 2021||% Change|
|Software Updates and Maintenance Revenue||$234.1M||$228.6M||2.4%|
|Security Subscriptions Revenue||$231M||$204.1M||13.2%|
|Products and Licenses Revenue||$173.4M||$166.4M||4.2%|
|Diluted Earnings Per Share||$2.20||$1.98||11.1%|
|Non-GAAP Net Income||$301M||$294M||2.4%|
|Non-GAAP Earnings Per Share||$2.45||$2.25||8.9%|
Check Point's revenue of $638.5 million in the quarter ended Dec. 31 beat Seeking Alpha's sales estimate of $636.2 million. And the company's non-GAAP earnings of $2.45 per share exceeded Seeking Alpha's non-GAAP estimate of $2.36 per share.
For the full year, Check Point's revenue jumped to $2.33 billion, up 7.5% from $2.17 billion the year prior. Net income dipped to $796.9 million, or $6.31 per diluted share, down 2.3% from $815.6 million, or $6.08 per diluted share, in 2021. On a non-GAAP basis, net income skyrocketed to $961.6 million, or $1.19 per diluted share, up 44.4$ from $666 million, or $0.80 per diluted share, in 2021.
The company's stock is up $0.58 - 0.46% - to $127.74 per share in trading midday Monday. That's the highest Check Point's stock has traded since Thursday.
Europe, the Middle East and Africa - or EMEA - accounted for 49% of Check Point's revenue in the fourth quarter, while the Americas delivered 39% of revenue and Asia-Pacific, or APAC, was responsible for the remaining 12% of revenue.
For the quarter ending March 31, Shwed says, Check Point expects non-GAAP net income of $1.68 to $1.78 per share on earnings of between $545 million and $585 million.