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Microsoft is rounding out its security software portfolio.
Patricia De Melo/Getty Images
Security software stocks were under pressure Wednesday after
Microsoft
announced a push into the $20 billion network edge security sector.
In a blog post, Microsoft (ticker: MSFT) unveiled two products in its Entra line of identity and network access software. Microsoft Entra Internet Access is a “secure web gateway” intended to protect “internet, software as a service, and Microsoft 365 apps and resources” from malicious internet traffic and other threats. Entra Private Access provides “secures access to private apps and resources.”
Edge security aims to stop bad actors before they can enter a network. Timing and pricing on the new products hasn’t been announced.
“The announcement represents Microsoft’’s entry into its last and largest security category—network security,” BTIG analyst Gray Powell writes in a research note. He estimates the segment represents a more than $20 billion addressable market. “The company’s platform will now span all major pillars: email, identity, endpoint, security analytics, and network security.”
Palo Alto
Network (PANW) and
Zscaler
(ZS) are the leaders in the “secure service edge” sector that Microsoft is now targeting, “with the most at stake from an incremental growth perspective,” Powell says. Other players in the sector, including
Fortinet
(FTNT),
Cloudflare
(NET) and
Check Point Software Technologies
(CHKP), are likely to view the news cautiously, the analyst added.
All of those stocks are trading lower Wednesday, with Palo Alto Networks sliding 6.5%; Zscaler off about 6%; Cloudflare 5.9% lower; Fortinet off 2.5%; and Check Point down 1.8%. Meanwhile, Microsoft stock was recently up 1.2%.
While Microsoft’s entry into the new market “represents a longer-term risk to existing vendors,” Powell says it will likely take longer for the company to become a disruptive player in this market than in other security software categories. He expects buyers will question Microsoft’s ability to protect applications across multiple clouds, beyond its own Azure cloud network.
Powell maintains his Buy rating on Palo Alto Networks, and keeps his Neutral ratings on Zscaler, Cloudflare, Fortinet, and Check Point.
KeyBanc analyst Michael Turits also took note of the Microsoft announcement. Like Powell, he says the new offering—while a long-term threat to the current players—will be less strong than other parts of Microsoft’s security software portfolio.
“We view Microsoft’s competitive position…as less strong than other areas of security where it has long had capabilities and likely to be less competitive in the enterprise segment,” Turits writes in a research note.
Write to Eric J. Savitz at [email protected]
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