SecProbe.io

May 3, 2012

Via E -mail
Mark D. McLaughlin
President and CEO
Palo Alto Networks, Inc.
3300 Olcott Street
Santa Clara, CA  95054

Re: Palo Alto Networks, Inc.
Registration Statement on Form S-1
Filed on April 6, 2012
File No. 333 -180620

Dear Mr. McLaughlin :

We have reviewed your registration statement and have the following comments.  In
some of our comments, we may ask you to provide us with information so we may better
understand your dis closure.

Please respond to this letter by amending your registration statement and providing the
requested information.  If you do not believe our comments apply to your facts and
circumstances or do not believe an amendment is appropriate, please tell us why in yo ur
response.

After reviewing any amendment to your registration statement and the information you
provide in response to these comments, we may have additional comments.

General

1. We are in receipt of your requ est for confidential treatment in connectio n with Exhibit
10.15 .  Comments, if any, will be issued in a separate letter.  Any comments must be
resolved and your application must be complete before we may accelerate  the effective
date of your registration statement.

2. We will process your amendments without price ranges.  Since the price range you select
will affect disclosure in several sections of the filling, we will need sufficient time to
process your amendments once a price range is included and the material information
now appearing blank throu ghout the document has been provided.  Please understand that
the effect of the price range on disclosure throughout the document may  cause us to raise
issues in area s on which we have not previously commented .

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 2

 3. We will contact you separately regarding th e gatefold graphics included in your
prospectus.

4. Since you appear to qualify as an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act (“the Act”), please disclose on your prospectus
cover page that you  are an emerging growth  company  and revise your prospectus to
provide the following additional disclosures:

 Describe how and when a company may lose emerging growth company status;
 A brief description of the various exemptions that are available to you, such as
exemptions from Section 404(b) of the Sarbanes -Oxley Act of 2002 and Section
14A(a) and (b) of the Securities Exchange Act of 1934; and
 Your election under Section 107(b) of the Act:
o If you have elected to opt out of the extended transition period for complying
with new or revised accounting standards pursuant to Section 107(b) of the Act,
include a statement that the election is irrevocable; or
o If you have elected to use the extended transition period for complying with
new or revised accounting standards under Section 1 02(b)(1) of the Act, provide
a risk factor explaining that this election allows you to delay the adoption of
new or revised accounting standards that have different effective dates for
public and private companies until those standards apply to private com panies.
 Please state in your risk factor that, as a result of this election, your financial
statements may not be comparable to companies that comply with public
company effective dates.  Include a similar statement in your critical accounting
policy disc losures in MD&A.
Prospectus Summary , page 1

5. Please minimize the use in the prospectus of technical jargon that is not likely to be
understood by your readers.  If you cannot convey information without using jargon,
please explain what the jargon means the  first place the terms appear.  For example,
please eliminate, or explain, the terms “appliance form factor” and “natively integrate.”

6. Please disclose in the summary that your directors, executive officers and principal
stockholders will continue to have  substantial control over the company after the
offering.  Also, consider disclosing on the cover page the percentage of your voting
power to be held by your affiliates following the offering.

Overview, page 1

7. Please provide independent and objec tive s upport for your statement  here that you
"pioneered the next generation of network security” and your statement on page 4 that
you “were the first company to define and lead the industry’s transition from the legacy
stateful inspection approach to the next -generation firewall paradigm.”

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 3

 Risk Factors, page 9

8. We note your statement in the introductory paragraph of this section that “additional risks
and uncertainties that we are unaware of, or that we currently believe are not material,
may also become important factors that affect us.”  Please remove this stat ement as your
risk factor section should address current and known material risks.

“A portion of our revenue is  generated by sales t o government entities…,” page 25

9. Tell us what consideration you have given to quantifying the amount of your revenues
attributable to government agencies and to discussing your sales to such entities in your
business disclosure.  Refer to Item 101(c)(1)(ix) of Regulation S -K.

“As a result of becoming a public company…,” page 37

10. Since you qualify as an emerging growth company, please revise this risk factor to note
the exemption available to you to Section 404(b) of the Sarbanes -Oxley Act of 2002 .

Market and Industry Data, page 40

11. We note the following disclosure in this secti on: “While we believe the market position,
market opportunity and market share information included in this prospectus is generally
reliable, such information  is inherently  imprecise .”  As you know, the company is
responsible for the entire content of the registration statement and should not include
language that can be interpreted as a disclaimer of information contained in the filing.
Please revise accordingly.

12. Please supplementally provide us with the applicable pages of all third -party reports cited
in the prospectus.  To expedite our review, please clearly mark each report to highlight
the applicable portion or section containing the information and cross -reference it to the
appropriate location in the prospectus.  Also, please tell us if you commiss ioned any of
the reports you cite.

Managemen t’s Discussion and Analysis of Financial C ondition and Results of Operations

Overview, page 49

13. Consider expanding your overview  to provide insight into material opportunities,
challenges and risks, such as those presented by known material trends  and uncertainties,
on which your executives are most focused for both the short and long term.  For
example, consider discussing the cha llenges and risks you face from your recent
substantial growth , the litigation with Juniper Networks  and your plans to increase your
operating expenses in the future.  Please refer to Section III.A of SEC Release No. 33 -
8350 for further guidance.

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 4

 Key Fin ancial Metrics, page 50

14. Your disc losures indicate that operating results  will depend largely on end-customers
renewal rates for your services , your ability to attract new end-customers and the average
sales price of your products and services .  These appe ar to be important measures and
factors impacting your operating performance.  You also disclose on page 52 gross
margin distinctions between sales of higher  and lower throughput products  as well as
gross margin distinctions for subscriptions which typical ly have higher gross margins
than support and maintenance services.  Tell us how you considered  disclosures here and
in “Results of Operations” regarding quantitative and qualitative discussion and analysis
of the changes in these metrics  and product and s ervice distinctions as well as price and
volume increases that contribute to your revenue increases and gross margin changes for
each period presented .  We refer you to Item 303(a)(3)(iii) of Regulation S -K and to
Section III.B.1 of SEC Release No. 33 -8350 .

Results of Operations , page 53

15. Please r evise to explain the underlying reasons for material changes in revenues by
geographic area.  Your disclosures appear to indicate that a discussion by geographic area
is important information necessary to an understanding of your business.  We refer you to
Section III.B.4 of SEC Release 33 -8350.

16. We note from your disclosures on page F -20 that the total compensation cost related to
unvested share -based awards granted to employees under your stock plans, not ye t
recognized was approximately $25.6 million as of January 31, 2012.  We further note that
you have not recorded any compensation expense associated with the restricted stock
awards granted in January 2012 containing both a service cond ition and liquidity
condition.  Please r evise your disclosures to discuss the impact that you expect
unrecognized compensation expense to have on your future results of operations.

Quarterly Revenue Trends, page 63

17. We note that product revenue decreased by almost 10% in t he quarter ended January 31,
2012 as compared to the quarter ended October 31, 2011.  Please discuss the reasons for
this decrease.

Liquidity and Capital Resources, page 64

18. Your disclosures appear to be a mere recitation of the changes and other inform ation
evident from your financial statements. Please r evise your disclosures to focus on the
primary drivers of and other material factors necessary to an understanding of your cash
flows and the indicative value of historical cash flows.   As an example , please consider
revising  to disclose  the day ’s sales outstanding (“DSO”) at each balance sheet date and
the impact it has on your cash flows. We note a material drop in the DSO for the six

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 5

 months ended January 31, 2012.  We refer you to Section IV.B of SEC  Release No. 33 -
8350.

Critical Accounting Policies and Estimates

Revenue Recognition, page 66

19. Please r evise your critical accounting policy for revenue recognition to describe in greater
detail the significant factors, inputs, assumptions and methods us ed to determine the
estimated selling price for the deliverables  in your multiple element arrangements .  In
particular, we note your use of percentage of appliance list prices to price subscription
services.  We refer you to Section V of SEC Release No. 33 -8350.

Common Stock Valuations, page 69

20. Explain how you determined that a straight -line methodology provides the most
reasonable conclusion for valuations of your common stock on interim dates between
contemporaneous third -party valuations.  Please revi se your disclosures to discuss the
series of events related to exceeding your financial targets between valuation dates.
Explain whether there were any changes in your revenue targets or pretax earnings during
the intervening months.  Please provide us wi th your monthly revenues, pretax earnings
and cash flows for the periods December 2010 through March 2012.  Explain whether
there were any changes in your discount rate, non -marketability discount and weightings
during the intervening periods.

21. When determined, please tell us your proposed IPO price, when you first initiated
discussions with underwriters and when the underwriters first communicated their
estimated price range and amount for your stock.  When your estimated IPO price is
known and included in your registration statement, please reconcile and explain the
difference between the fair value of the underlying stock as of the most recent valuation
date and the midpoint of your IPO offering range.

22. Please revise to disclose the factors you  considered in determining your selection of the
comparable companies. For instance, you should more clearly describe how you selected
comparable companies for your common stock valuations whether based on industry,
size, revenue multiples and/or growth ra tes.  Clarify whether the same set of comparable
companies are used in all the relevant valuation estimates, including inputs to stock
options, common stock and discount rates.

23. Clarify your consideration of a liquidity event for the March 2011, June 201 1 and July
2011 valuations in which you applied the straight -line methodology.  In this respect, your
disclosures on page 70 indicate that you could not reasonably estimate the form and time
of a potential liquidity event prior to August 2011.

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 6

 24. Please revi se your disclosures to provide an enhanced discussion of the significant factors
contributing to the difference in fair value of your underlying common stock at each
valuation date.  For instance, your disclosures should explain more clearly the reasons fo r
the changes in the discount rate applied to your cash flows and the non -marketability
discount.  In addition, you should quantify how changes in the discount rate and non -
marketability discount and weightings between valuation methods impacted the fair v alue
determination at each respective valuation date.

Business

Customer Case Studies, page 92

25. Please supplementally advise us of the names of the customers discussed in the case
studies  in this section and tell us what consideration you gave to disclosi ng the names in
the prospectus.  In this regard, we note you disclose the identity of customers in case
studies included on your website.  Also, please disclose the approximate date that each
customer began using your products.

Sales and Marketing, page  93

26. We note your disclosure on page F -8 that in fiscal 2011 two partners represented 29% of
your total revenue – specifically, 16% and 13%.   Tell us what consideration you gave to
discussing this concentration in your risk factor on page 19 and to disclos ing any
implications on your business in your MD&A overview.  Also, tell us what consideration
you gave to discussing the material terms of your arrangements with these partners in this
section and filing any agreements as exhibits to your registration sta tement.  Refer to
Item 601(b )(10)(ii)(B) of Regulation S -K.

Manufacturing, page 94

27. We note that you have filed your Manufacturing Services Agreement with Flextronics
Telecom Systems as Exhibit 10.15 to your registration statement.  Please revise this
section to disclose the material terms of this agreement.  Also, tell us what consideration
you gave to discussing your arrangements with the original design manufacturer
reference d in the risk factor on page 22  and filing your agreements with this manufactur er
as exhibits to your registration statement.  Refer to Item 601(b)(10)(ii)(B) of Regulation
S-K.

Intellectual Property, page 95

28. Please expand this section to discuss the importance and the duration of your patents .
Refer to Item 101(c)(1)(iv) of Regulation S -K.

Mark D. McLaughlin
Palo Alto Networks, Inc.
May 3, 2012
Page 7

 Executive Compensation

Corporate Performance Measures, page 110

29. We note that the corporate performance measures for your 2011 bonus plan were
bookings and operating income.  Please revise to disclose the quarterly and full year
quantit ative performance targets for each of these financial performance measures.  Refer
to Item 402(b)(2)(v) of Regulation S -K.  To the extent you believe that disclosure of
these targets is not required because it would result in competitive harm such that you
may omit this information under Instruction 4 to Item 402(b) of Regulation S -K, please
provide in your response letter a detailed explanation of such conclusion.  In this regard,
please note that we generally do not agree with the argument that disclosing  a company -
level performance target for the prior fiscal year would cause a registrant competitive
harm when disclosure of the performance target will occur after the fiscal year has ended