What if Shwed had managed Check Point more like Zuk's Palo Alto Networks?
“If there is something that the investors are signaling to Shwed and whoever will replace him in the position, it is that in the long term they still prefer phenomenal growth and bold moves, provided they succeed, of course, over conservatism that sanctifies profitability”
Gil Shwed chuckled on Tuesday when asked if he would be offended if Check Point's stock would rise following the announcement of his departure from the role of CEO after 30 years. On a net economic level, it is clear that he has nothing to be angry about as someone who owns almost a quarter of the company's shares. However, quite a few investors and analysts believe that if Shwed had left earlier, Check Point would have taken bolder moves, which would have made it much bigger today. For what it’s worth, the stock did rise on Tuesday by 1%, giving the company a market cap of $19 billion.
Many people dream of the possibility to see "what would have happened if," but of course, only get to see the results of the route they chose. Shwed is also lucky on this level as the path he did not choose is right in front of his eyes. But unfortunately, even if he is sure of the rightness of his way, the path he did not choose has been embraced by investors, and the reference is obviously to Palo Alto Networks. The company was founded by Nir Zuk, one of the first employees of Check Point, who recognized quite quickly that it would be difficult to flourish and develop next to a dominant figure like Shwed, especially if you do not agree with his vision.
Shwed wanted to make Check Point's firewall the gold standard in the industry, which he succeeded in doing, but he missed some of the real-time developments taking place in the cyber market, especially the jump to the cloud. Zuk believed in exactly the opposite thinking and implemented it together with Palo Alto's CEO Nikesh Arora. Unlike Shwed, the two handed out very generous stock compensation for employees, led by CEO Arora who became a billionaire despite being an employee, to such an extent that it was difficult for Palo Alto to present profitability over the years, even when the cash flow was positive. Zuk, who serves as the CTO, today owns a few percent of Palo Alto's shares.
But more than anything, Palo Alto sacrificed profitability on the altar of growth with a series of bold acquisitions on which it spent approximately $5 billion, including around $1 billion on Israeli startups in the past few months. Shwed seemed to have also responded to the criticism and stepped up the purchases, but they were not big enough and especially not good enough. Palo Alto has bought a similar amount of companies to that of Check Point (20), but today it generates during one quarter the same as the annual revenues of the old competitor.
It is hard to argue with the fact that Check Point is an impressive success, an Israeli pride, and a company that grew from scratch with a big dream all the way to the numbers it presented on Tuesday (annual revenue of $2.4 billion and net profit of $840 million in 2023). But that's only until you look at Palo Alto, which reached a $100 billion valuation in half the time and within a decade of its initial Wall Street IPO. If there is something that the investors are signaling to Shwed and whoever will replace him in the position, it is that in the long term they still prefer phenomenal growth and bold moves, provided they succeed, of course, over conservatism that sanctifies profitability.
