Palo Alto Networks, Inc. (PANW) on Q4 2022 Results - Earnings Call Transcript

Clay Bilby: Good day, everyone, and welcome to Palo Alto Networks Fiscal Fourth Quarter 2022 Earnings Conference Call. I am Clay Bilby, Head of Palo Alto Networks Investor Relations. Please note that this call is being recorded today, Monday, August 22, 2022, at 1:30 p.m. Pacific Time. With me on today's call are Nikesh Arora, our Chairman and Chief Executive Officer; Lee Klarich, our Chief Product Officer; and Dipak Golechha, our Chief Financial Officer. You can find the press release and information to supplement today's discussion on our website at investors.paloaltonetworks.com. While there, please click on the link for Events & Presentations where you'll find the investor presentation and supplemental information. In the course of today's conference call, we will make forward-looking statements and projections that involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made in this presentation. These forward-looking statements are based on our current beliefs and information available to management as of today. Risks, uncertainties and other factors that could cause actual results to differ are identified in the safe harbor statements provided in our earnings release and presentation and in our SEC filings. Palo Alto Networks assumes no obligation to update the information provided as a part of today's presentation. We will also discuss non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. We have included the tables which provide reconciliations between the non-GAAP and GAAP financial measures in the appendix to the presentation and in our earnings release, which we have filed with the SEC and which can also be found in the Investors section of our website. Please also note that all comparisons are on a year-over-year basis, unless specifically noted otherwise. We would like to note management is scheduled to participate in the Citibank Global Technology Conference and Goldman Sachs Communacopia and Technology Conference in September. I will now turn the call over to Nikesh. Nikesh Arora: Thank you, Clay. Good afternoon, and thank you for joining us today for our earnings call. As you can see from the video, we were excited to celebrate the 10th anniversary of our IPO in early July. Our employees are engaged and excited as we continue confidently on our mission to be the cybersecurity partner of choice. Moving to Q4, I'm pleased to report that we again saw very strong results, starting with top line results that were well ahead of the guidance we initially outlined for the fiscal year '22. We delivered this growth while balancing our profitability commitments, we also made significant investments to continue to transform our company and take advantage of the large and rapidly growing market opportunity we see in cybersecurity. On the top line, billings growth of 44% was the highest we've reported in four years. We also grew RPO ahead of our revenue growth rate. The key focus of our team has been rapidly positioning us as a constant cybersecurity innovator. And one way we measure our progress is how our NGS ARR develops. We're delighted to report this metric grew 60%, reaching $1.9 billion exiting the year. We are expecting it to reach $2.6 billion in FY '23. If this was an independent start-up, it would be amongst the fastest-growing cybersecurity businesses to achieve scale. Within our core network security business, Firewall as a Platform billings grew 26%. When we started reporting this metric, the intent was always to show that we continue to take share in the network security market; at the same time, transform the business to a software business. Today, close to 50% of that comes from software form factors. Operating income grew 52% in Q4 and our operating margin for the year finished to the high end of the guidance range, with adjusted free cash flow margin coming in above the high end of the range we provided. We achieved a major internal goal we've had on the profitability front, delivering GAAP profitability this quarter. Looking forward, we're guiding to full year GAAP profitability in fiscal 2023. We've had many of you ask us about the macro environment and how is it impacting our business and the markets we serve. In the last year, we arguably saw the most challenging supply chain conditions the technology industry has ever seen. We executed through this well during the year with modest impacts to our gross margins. We expect conditions will eventually ease. For our planning, we're assuming a material improvement won't be seen prior to the end of fiscal year '23. However, as the supply challenges fade, we expect this will start to have a favorable impact on our product gross margins. There's a continuing debate on inflation, it's nature and duration. We saw some labor and other inflationary pressures in the second half of the fiscal year. We do not anticipate these pressures going away in the next fiscal year and we have planned for it to persist through fiscal year '23. And hence, it is included in our plan and is reflected in our guidance. With respect to the macro impact on demand, we've just come out of Q4 with exceptional 44% billings growth. In enterprise sales, as most of you know, there is Q4 magic. We did, however, see some marginal changes in the macro environment in Q4. Whilst early, it is important to see how the overall macroeconomic conditions develop over the next year. First, we saw more longer duration deals as customers increasingly have the confidence to make large long-term commitments with us. This is important to the transformation objectives we set out for Palo Alto Networks. It confirms and validates our view that customers will consolidate if we give them constant best-of-breed products and ensure that they are integrated to deliver better security outcomes. Second, we saw some isolated instances of customers extending the life of hardware potentially driven by macro forces. We expect that on the margin. This could continue into FY '23. It is counterbalanced by some customers refreshing their state and our continued share gains in the hardware form factor. Third, in transformational projects, the vast majority of our customers continue on their investments here despite the expected short-term macro impacts. Security spending is tied into our customers' desires to move to the cloud, drive more direct relationship with their customers, modernize their IT infrastructure as well as drive efficiencies while adapting to a new way of working. Those efforts continue. Coupled with heightened awareness and need to do something around cybersecurity, we expect secular tailwinds to persist in cybersecurity, and we are best positioned to deliver against our customer needs. Another trend I would like to highlight is the return to Palo Alto Networks by employees who had left for seemingly greener pastures. Over a six-month period, as part of our Welcome Home Program, we have engaged with many former employees. To date, dozens of top performers have been rehired with many more in the funnel. Over 70% of people reached out to have expressed a desire to come back to us and a significant number already have. 50% are returning from start-ups, the next largest percentage coming from peer companies. We're happy to welcome these employees back to Palo Alto Networks. As we embark on new fiscal year, my fifth as Palo Alto Networks CEO, it’s worth reflecting where we came from. Our transformation strategy has not been easy, but we are unwavering in our resolve to build the most comprehensive and relevant offerings for our customers, taking away their complexity and delivering a better security outcome for them. We see a path to being the largest cybersecurity company backed by constant innovation and excellent execution becoming our customers' cybersecurity partner of choice while delivering increasing value to our shareholders. Just four years ago, we were a different company. We have reinvented the firewall market and captured the market share leadership position. There are glimmers of our next-generation security strategy, but it made up just 8% of our billings. Our software story in network and security was early, with some traction in our virtual firewalls and a fledgling precursor to SASE called GlobalProtect Cloud Services. We made our first acquisition in cloud native security and had early point products that will become part of Cortex. When we step back and took stock in the industry, we had a key hypothesis, which we then tested, proved to ourselves and have reproduced across the business today. There has not previously been a cybersecurity company with a leadership position in multiple categories, nor did the customers believe that a cybersecurity platform could anchor their architecture. We set out on this ambitious journey as you see at Prisma Cloud and Cortex as well as innovated significantly in our network security capabilities. Fast forward to today, our transformation has taken us far. We are a recognized leader in 11 cybersecurity categories across our three platforms. Next-generation security contributed more than 38% of our billings, helping to accelerate our growth. In network security, we now have the most comprehensive solution across three form factors that share a common architecture and also offer a suite of market-leading security subscriptions. We have built, assembled and integrated capabilities in nine modules that make up Prisma Cloud, which is now the leader in cloud native security. Lastly, we have three anchor products in Cortex, which with our new XSIAM product showing promise in the revolutionized security operations is going to hold us in good stead. The proof that this transformation is working is in the momentum we are seeing in our customers. The number of customers that spend over $1 million annually with us continues to grow, with the millionaire count now in excess of 1,200 and the number of Global 2000 customers that have purchased products in all three of our platforms is now 50%. While we've had many large customer wins recently, I want to highlight a team in three transactions. The first is a technology company that purchased products in all three of our platforms and a transaction over $75 million in value. The second is a financial services company that standardized its network security in our platform, including adding VMs and deploying Prisma Cloud spending north of $40 million. And third is a professional services company that spent over $75 million across Strata, Prisma and Cortex. One of the outcomes from our transformation over the past four years is a steady increase in our subscription and support mix primarily driven by the growth of our next-generation security business. Subscription and support now exceed 80% of our billings. This has resulted in greater predictability in our revenues. We have seen growing commitments from our customers represent a greater portion of our next year's revenue. As we enter fiscal year '23, that number is 59% at the midpoint of our guidance. Increasing revenue visibility gives us further confidence in our ability to invest and drive future growth. This number is over 70% for the revenue we expect in Q1. All of this has occurred while our revenue growth has accelerated from FY '20 to FY '22, in part due to the accelerated growth in our next-generation security offerings, while we have also taken share in traditional network security appliance form factors as reported by third parties. Despite the success so far in our transformation, we still see significant potential ahead of us. We estimate our large addressable market to be growing at a rate of 14%. At 29%, our fiscal year '22 revenue growth more than doubled this market growth rate. As we have transformed the business, we have seen our revenue growth reaccelerate. Even with this significant growth over the last four years, we still only represent approximately 6% of our TAM we last presented at our Analyst Day in September 2021. 6% share of the market is low for the market leader as compared to other categories and technology. So we see there is ample room to grow. There are numerous trends that excite us around our ability to drive this growth and continue our share gains. You may soon see a day where there will be $1 trillion in public cloud consumed. Our observation thus far in this early market is that companies allocate 2% to 5% of the cloud budgeted security, creating a significant Prisma cloud opportunity. There are 3.5 million worldwide cybersecurity jobs that are unfulfilled. Our view is that more training and hiring alone will not effectively and efficiently counter the growing use of automation employed in attacks and the volume of alerts that is overwhelming the security operations center. We believe a new paradigm and security ops is needed that heavily leverages AI and automation. We are targeting this opportunity with our Cortex products and XSIAM products specifically. Lastly, hybrid work is here to stay. There are more than 1 billion knowledge workers globally. We believe we have a strong position in SASE with our coverage of users and branch offices today, just catching the surface of loss opportunity. We have a clear mission in front of us in each of our security platforms to harness the opportunity that we have outlined. As this is Q4, I figured, rather than having me outline all the accomplishments from our product team, I would invite Lee Klarich, who patiently listens and sits in our calls, to give you a more detailed update to help you understand how we will continue to build on our success we had in FY '22. Lee Klarich: Thank you, Nikesh. As Nikesh highlighted, across cybersecurity, one of the biggest challenges has always been the overwhelming number of point products that customers must deploy, integrate and operationalize to achieve the security they need. In most cases, this has never fully achieved, leading to expensive yet suboptimal security outcomes. We are bringing into approach, one that delivers market-leading capabilities tightly integrated in three platforms. FY '22 has been a significant year for us in network security, where we have furthered our position delivering a consistent security architecture across hardware, software and SASE. We neared completion of our Gen 4 hardware rollout, which on some models delivers close to 10x performance over Gen 3. As a result, we saw over 50% of NGFW hardware sales in Q4 on Gen 4. Also in FY '22, we introduced the cloud NGFW across three of the major clouds, enabling our customers to adopt best-in-class network security in a cloud native service. And Prisma SASE had three major launches in FY '22, including the most recent ZTNA 2.0 launch, firmly establishing our next-gen approach to Zero Trust. Across our hardware, software and SASE form factors, we are able to deliver a consistent set of core security capabilities as ML-powered cloud services. In FY '22, we saw the rapid adoption of Advanced URL Filtering, and we now see nearly all URL Filtering sales on this advanced ML-based service. Advanced Threat Prevention, which was introduced in fiscal Q3, is also now off to a strong start. And perhaps most importantly, customers can manage all form factors and security subscriptions from a single management console to deliver consistent user experience and tremendous operational leverage. While we believe the full platform is where customers will end up, we want to ensure customers can start their adoption with any form factor and receive a truly best-in-class solution. The number of $1 million lifetime value SASE customers that are also customers of our two other network security form factors ended FY '22 at 210. This is up eightfold since FY '19. We have seven customers that have purchased all three of our form factors with $100 million in lifetime value in network security. More broadly, when we look at our network security customer base, customers that have bought all three platforms from us, spend 10x more than those who are customers of only one form factor. This showcases the true value of our network security platform. In Q4, we introduced ZTNA 2.0, which redefines state-of-the-art and Zero Trust network access to bring uncompromised security and deliver zero trust with zero exceptions. We have seen significant momentum in our customer traction on SASE in FY '22 on a number of fronts. Our overall active SASE customer base grew by 51% in Q4, and our $1 million SASE deals also accelerated this year, up 83% with over 50 $1 million deals in Q4 alone. While many of these large deals are coming from our installed base as they see the value across our form factors, it is equally important that over 30% of our new SASE customers in Q4 were new to Palo Alto Networks. This highlights the competitiveness of our SASE solution and enables us to reach net new customers. Additionally, once we land with the new SASE customer, we are seeing customers look to standardize on our hardware and software appliances. In the cloud, we see that most customers are still relatively early in their journey. They are migrating workloads to the cloud and building new applications, growing their footprints, consuming more sophisticated services and adopting multiple clouds. With this has come an expansion in their cloud security needs. Our approach with Prisma Cloud delivers a comprehensive platform with a growing set of capabilities to stay ahead of our customers' needs. Increasingly, cloud security needs to start at the moment developers write their first lines of code through to deploying and running this code in public cloud. The acquisition of Bridgecrew brought us Infrastructure as Code, a way of detecting and fixing security issues during development. IAC became our ninth integrated module of Prisma Cloud at the end of January. And in the first six months of availability, we already have over 200 customers, making it our fastest-growing new module. We designed an incredibly easy way for our customers to activate any of the nine modules and have grown the number of customers that use more than three modules to over 1/3 and those using four modules to nearly 20%. This frictionless module adoption has helped to fuel our 55% growth in credits consumed on the platform. We are also closing in on 2,000 customers for Prisma Cloud. It's great to see all the third-party recognition like the SC Award as best cloud workload protection solution that we announced today, but we're not done yet. We see several opportunities for new modules and we'll continue to look at both organic development and external technology to drive continued expansion of the Prisma Cloud platform. We are earlier in our Cortex platform journey, executing well across our three core product categories of XDR, security orchestration and automation, and attack surface management. We saw significant progress in FY '22 as we drove sales of our key products and increased traction, combining offerings in larger cross Cortex transactions. Our customer count surpassed 4,000, and we also signed 52 transactions greater than $1 million in Q4. Combined with this customer success, we also continued the rapid innovation that we believe will be required to be a leader in security operations more holistically. When we envision the future of cybersecurity, I don't see a path to success that is not heavily driven by AI and automation. Attackers are too well funded and determined while customer networks, clouds, applications and users are too complex to manually defend. The only way to deliver meaningful security outcomes is by collecting rich useful data normalizing all data sources to a single source of truth and then applying AI models to detect attacks and automate responses in real time. We are now taking this to the next level. Earlier this year, we announced XSIAM, a fully integrated AI-driven SOC platform and kicked off a program with a limited number of design partners to ensure we had strong product market fit. The results of this design partner program are incredibly encouraging, proving our assumptions about the value of good quality data powering AI-based attack detection and native automation simplifying and speeding response. And I'm happy to say our first paid customer was a seven-figure purchase and most of the other design partners are likely to purchase in the coming months. We are on track to launch the product into a broader set of our customers in the first half of fiscal '23. We could not have accomplished all we have in the last several years in advancing our lead in network security, standing up our cloud-native security platform and progressing towards the autonomous stock without our investments in innovation. Over the last several years, our R&D spending has grown in order to enable our ambition to lead with the three platforms. You see this in major product releases, which reached nearly 50 in FY '22. As we move into FY '23, we are more committed than ever to leading in cybersecurity innovation. My team went through a rigorous process of prioritizing our most important investment areas across our three platforms. With the continued investment in R&D, I'm confident Nikesh Arora: about our financial targets in FY '23. I highlighted the strong drivers at play, including technology sector forces as well as drivers within cybersecurity. We just talked to you about all the innovation we have underway. We continue to have confidence in our team's execution and the traction we're seeing across our platforms. We expect to continue to deliver strong results, in line with the profile we have talked about for the last year since our Analyst Day. For fiscal year 2023, this includes billings growth of 20% to 21% and revenue growth with increasing predictability that is in the mid-20s. After achieving operating margins at the high end of our guidance in fiscal year '22, we intend to deliver operating margin expansion of 50 basis points to the high end of our guidance, with adjusted free cash flow margins of over 100 basis points at the high end of our guidance while absorbing increased supply chain costs and inflationary impacts. We achieved GAAP profitability in Q4 fiscal year '22 and we project this will continue for fiscal year '23. Lastly, today, we also announced a 3-for-1 stock split. This was done to help ensure our shares are accessible to all employees and investors. The stock split also demonstrates our belief in the future of the company and the momentum and confidence we have in our strategy. With that, I will pass on to Dipak to discuss our Q4 results in more detail as well as our Q1 and fiscal year '23 guidance. Dipak Golechha: Thank you, Nikesh, and good afternoon, everyone. Today, we again reported another strong quarter, which culminates in a strong fiscal year for Palo Alto Networks. For Q4, revenue of $1.55 billion grew 27% and was at the high end of our guidance range. Products grew 20% and total services grew by 30%. By geography, we saw strong growth across all theaters with EMEA up 33%, the Americas growing 26% and JAPAC growing 24%. The Next-Generation Security ARR grew 60% to $1.89 billion with strength across the portfolio. In the fourth quarter of 2022, we delivered total billings of $2.69 billion, up 44%, which was above the high end of our guidance range. Total deferred revenue in Q4 was $6.99 billion, an increase of 39%. Remaining performance obligation, or RPO, was $8.2 billion increasing 40% with current RPO representing about half of our RPO similar to recent quarters. With nearly all of our hardware products now refreshed, as Lee had mentioned, over 50% of our Q4 product orders were booked with Generation 4. Customer reception has been positive, with the majority of customers still in the early phases of their upgrade. Our Firewall as a Platform billings grew 26%. We also continue to see an increasing software mix within our FWaaP billings, up 2 points to 48% in Q4. Moving beyond the top line metrics I've already highlighted, non-GAAP gross margin of 73.2% was down 210 basis points year-over-year as we continue to incur additional expense for components and shipping. We expect this headwind to persist to March of fiscal year '23. Last Q4, we guided for a fiscal '22 operating margin of 18.5% to 19%. We're pleased to have achieved the high end of our goal by delivering 19% operating margin for fiscal year '22, while absorbing higher-than-expected supply chain costs. Non-GAAP net income for the fourth quarter grew 57% to $254 million or $2.39 per diluted share. Our non-GAAP effective tax rate was 22%, GAAP net income was $3 million or $0.03 per basic and diluted share. Turning now to the balance sheet and cash flow statement. We finished Q4 with cash, equivalents and investments of $4.69 billion. Days sales outstanding was 98 days, several days above where it would have landed without the impact of late quarter shipments. Our discounts continue to be in line with what we have seen over the last year. Q4 cash flow from operations was $524 million. We generated adjusted free cash flow of $485 million. We achieved 33.3% adjusted free cash flow margins for the year, above the high end of our 32% to 33% guide for fiscal year '22. During Q4, we repurchased approximately 755,000 shares on the open market at an average price of approximately $483 per share for a total consideration of $365 million. Additionally, our Board of Directors authorized an additional $915 million for share repurchase, refreshing our authorization for future share repurchases back to $1 billion expiring December 31, 2023. On the M&A front, we closed one very small acquisition in Q4. We reduced our stock-based compensation as a percent of revenue by approximately 3% year-over-year and quarter-to-quarter. SBC will remain a focus area in fiscal '23 as we balance the use of SBC to attract and retain top cybersecurity talent with scale leverage we expect in this area. Lastly, moving to guidance and modeling points. It is worth noting that in fiscal '22, we have flexibility built into our plans that allowed us to execute through some real-time developments during the year, such as supply chain and labor inflation. We've used the same approach in building our fiscal year '23 plans, incorporating a degree of flexibility of outcomes. It's also worth noting that we saw a very strong Q4 business activity. In some cases, this was from customers taking advantage of ordering hardware and especially subscriptions ahead of a price increase that took effect on August 1. We also saw some customers make large commitments in the fourth quarter that might have otherwise happened in fiscal year '23. As you think about next year, note that in the second half of fiscal '22, we have very strong billings with some benefit from an increase in invoicing of multiyear contracts for a few large customers. In Q4, without this impact, our billings would have been in the mid to high 30s. Turning to our guidance for the fiscal quarter of 2023. We expect billings to be in the range of $1.68 billion to $1.70 billion, an increase of 22% to 23%. We expect revenue to be in the range of $1.535 billion to $1.555 billion, an increase of 23% to 25%. We expect non-GAAP EPS to be in the range of $2.03 to 2.06%. For the fiscal year '23, we expect billings to be in the range of $8.95 billion to $9.05 billion, an increase of 20% to 21%. We expect NGS ARR to be in the range of $2.60 billion to $2.65 billion, an increase of 37% to 40%. We expect revenue to be in the range of $6.85 billion to $6.9 billion, an increase of 25%. We expect product revenue to be in the mid to high single-digit percent range year-over-year. We expect fiscal '23 operating margins to be in the range of 19% to 19.5%, which is 50 basis points ahead of the range we provided at our fiscal -- for fiscal '22 and consistent with the growth targets we presented during our fiscal year '21 Analyst Day. We expect non-GAAP EPS to be in the range of $9.40 to $9.50. We expect adjusted free cash flow margin to be 33.5% to 34.5%, and we expect to be GAAP profitable for fiscal year 2023. Regarding our fiscal year '24 financial targets, which we outlined at our September 21 Analyst Day, we have strong confidence in achieving those objectives and we hope you take away from our call today some of the reasons behind this confidence. Additionally, please consider the following modeling points. We expect approximately 42% of our operating income to come in the first half of the fiscal year and approximately 58% in the second half. We expect our non-GAAP tax rate to remain at 22% for Q1 fiscal year '23, subject to the outcome of future tax legislation. For Q1 '23, we expect net interest and other income of $6 million to $8 million. We expect Q1 '23 diluted shares outstanding of 108 million to 110 million shares. We expect fiscal year '23 diluted shares outstanding of 111 million to 113 million shares. We expect our Q1 capital expenditures of $35 million to $40 million. And we expect fiscal year '23 capital expenditures of $190 million to $200 million. And finally, as Nikesh noted, we announced today a 3-for-1 split of Palo Alto Networks common stock. The decision was driven by a desire to make our stock more accessible to our employees and the broader group of investors. It is also supported by our underlying confidence in our continued business momentum. Shareholders of record at the close of business on September 6, 2022 will receive two additional shares after the close of business on September 13, 2022 for every outstanding share held on September 6. Our stock will be trading on a split-adjusted basis on September 14, 2022. With that, I will turn the call back over to Clay for the Q&A portion of the call. A - Clay Bilby : Great. Thank you, Dipak. To allow for a broad participation, I would ask that each person ask only one question. The first question comes from Hamza Fodderwala of Morgan Stanley, with Rob Owens to follow. Hamza Fodderwala : A really nice set of results. Dipak, just a clarification question for you real quick. Did you say that the billings growth in Q4 would have been mid to high 30s, excluding the estimated pull forward? And then also for Nikesh, you mentioned some early macro commentary about longer duration deals. Are you also seeing any changes in the sales cycle as you guys do more seven, eight-figure (ph) deals? And then did that reflect in the guidance at all? Nikesh Arora : Yes. I just keep the efficiency of time. Yes, Dipak did say that if some of the -- it's important to understand, not just pull forwards, we had some large long-duration deals, having normalized for them. We just want to make sure we set expectations for next year, that 44 was exceptional and some of that was because of some large longer duration deals. I mean normalize for that, then you'd end up in the mid to high 30s. So this is more precautionary in our part as opposed to telling you that we're not doing well. On the front of like -- deal life cycles have been elongating at the top end of the market for us as the deal size have grown. This is not net new to us. This has been happening over the last two or three years. When I came, the largest deal we did was $28 million, now we've done deals closer to $100 million. So obviously, it takes a longer time to get a $100 million deal in place and requires a lot more validation from our customers' POCs and getting engaged. So that trend is consistent. We have not seen any change in that driven by economic factors. So that is your question. As I said, the three effects we saw, we shared a little bit of sweating of hardware assets to push them out a little longer and we've seen some people look at transformation projects. You can see them not go away from transformation. We've seen consolidation. Those are the three things we've seen. Clay Bilby : Great. Next question from Rob Owens of Piper Sandler with Phil Winslow to follow. Rob Owens : Would love to drill down into the success you guys are seeing in Prisma Cloud. And what are the biggest factors and/or technical differentiation that's driving your success right now? Nikesh Arora : Let me give you sort of an overarching picture, and Lee has been kind enough to elicit our product capabilities. But like -- very quickly, we're noticing that if you go out look that there's hundreds of billions of dollars of cloud being sold by our cloud service providers, the top 5 around the world. And what is becoming clear is most of the top end or large customers are in multiple clouds. They're not just in one. We ourselves are in GCP and AWS instances and delivered Azure. So we're seeing ourselves in multi-cloud scenario. So one, that multi-cloud development is causing customers to look for a multi-cloud solution, and that's normally not driven by one cloud service provider, it’s typically somebody like us. That's one part of it. The other part is if the customer is looking for a point solution, it's harder for us, but most customers are migrating away from point solutions, looking for a more platform approach. As Lee highlighted, which Bridgecrew, which we acquired operates on the left side of the development life cycle, the build life cycle. Prisma Cloud used to traditionally operate in the run cycle where you put things into production. By connecting build and run, we've created the sort of even the extension to the development life cycle. So we are seeing people who are taking a serious view towards cybersecurity in the cloud come to Palo Alto Networks and not chase some point solutions. If you look at the industry, there are no platform solutions available. Most industry groups have already validated that as the SC Awards we heard about this morning. So Lee, do you want to add something, technical differentiation? Lee Klarich : You've been well trained, Nikesh. Nikesh Arora : All right. Lee Klarich : I'll add one piece, and actually, Nikesh said it in his prepared remarks. Not only do we have a platform approach, but everything that we deliver from the platform is best in class. And that combination is critically important for our customers to have the trust and confidence in using Prisma Cloud. Clay Bilby : Great. Next, Phil Winslow of Credit Suisse with Adam to follow. Philip Winslow : Congratulations on a great end to the fiscal year. Now when we speak to your partners, a growing message back has been an increasing amount of demand for Prisma access, which obviously had a great quarter. It's coming from enterprises that have been customers of other competing on-premise firewall vendors. However, they do not offer as robust a set of cloud service as Palo Alto Networks does. And lead to your point, during your slides, the number that jumped out to us today was that more than 30% of new SASE logos in Q4 were new to Palo Alto Networks. So Nikesh, maybe Lee, if you could comment too. If you think forward here, what is the opportunity to not only monetize SASE and Prisma Access but also to potentially transition that largely on-premise installed base of those competing firewall vendors to Palo Alto Networks platform, what are you hearing from customers and why? Nikesh Arora : Phil, I think in the last year, I would say, our ability to deliver, deploy and sell SASE has grown. And as you picked up the number, 30% of these customers are net new to Palo Alto. And the way it works is we go to them, they appreciate our firewalls, but the problem is they now have bought firewalls from somebody two years ago, three years ago, five years ago, and there's still a lot end of life on them. So they like us, they like our solutions, but they're not able to execute because somebody before them bought them or they bought them at a moment when they (ph). So it now comes to a point where we are able to convince them that our SASE solution is right. Our excitement for these 30% customers is that, over time, they will then migrate their on-prem hardware to Palo Alto as well. And we're noticing early days, but we're noticing some of these customers who bought our SASE solution because they understand our security fabric then have deployed it, then it's a simple attach of putting hardware because security solutions have already been put into place. So we have taken share in the firewall market by most third-party estimates, somewhere between 300 to 400 basis points. And we think part of the driver is us being able to deliver a more comprehensive zero trust network security capability. As Lee highlighted, we have customers who have spent north of $100 million of lifetime value and network security with us, which is hard to do. Clay Bilby : Great. Next is Adam Tindle of Raymond James with Brian Essex to follow. Adam Tindle : Okay. Nikesh on the NGS portfolio, congrats on the success. You're just under $2 billion at this point. And I thought I'd maybe touch on the growth versus profitability algorithm for that piece of the business now that at this level of scale. If I look at the fiscal '23 guidance, it implies that new NGS ARR is going to be just over $700 million, which is a big number, but it's about the same dollar amount as you added in fiscal '22. Could you maybe speak to kind of the crossroads of opportunity to invest more for NGS ARR, maybe a new step function level of new ARR growth versus is it a better opportunity now to harvest and improve profitability and certainly, any metrics you can provide on where you are and where you can go and NGS profitability would be great. Nikesh Arora : So I'm sorry, I'm confused. Are you saying 50%, 60% growth is time to harvest or trying to grow faster? Sometimes I can never make you guys happy. It's like three years ago, we said $1 billion you guys always said, that's a big number. You won't get there. We get you to $1.9 billion in four years, and they sit and say, that's par for the course now, just like start making more money. Like, as Lee highlighted, we are trying to balance our R&D spend with our growth aspirations. I personally believe there is so much room in the cybersecurity market as we've demonstrated. Since I came, we've -- revenue growth is up 50% in terms of percentage growth. So we used to grow in the 19%, 20% range, growing at 20% to 29%. And I think that's a good place. It's such large numbers. We're growing at a good number. We're going to keep balancing our investment yet showing you fiscal prudence. Could I go spend more money and let the operating margin language lower? Yes. But I don't want to. We promised that we keep extracting operating margin to make sure we're fiscally prudent, and we're going to do that. But at the same time, we use the opportunity of every dollar to make it more efficient and keep spending for growth. We think our growth profile, obviously, as you would expect, has improved for most of our products that we were taking bets on about three or four years ago. I think it's also important to understand ARR is a leading indicator of revenue. So revenue comes in after ARR and then you have costs come in on day one. So yes, our operating margins for these new areas are getting better, in some cases getting to positive from negative. But I think we're still further away until you see the impact of the $700 million, $800 million we added this year. As that flows into revenue, the next 700 flows in revenue, we hopefully will keep expanding operating margins, which is fueling our ability to give you that 50 basis point expansion over the years. But we're going to keep striking the balance. Clay Bilby : Great. Next is Brian Essex of Goldman Sachs, with Fatima Boolani to follow. Brian Essex : My congratulations on the results as well. It's great to see. Maybe, Nikesh, if you could help us reconcile what you're seeing on the product revenue side, particularly within the context of your guidance next year, particularly given what you said about consolidating, sharing your platform, early stages of refresh cycle, but it sounds like you've got some great VM series traction and the percentage of revenue of total Firewall as a Platform business is accelerating. What are the underlying assumptions behind that mid to high single-digit product revenue growth? Where could you see upside? And how are things different underlying those expectations compared to what you're seeing today? Nikesh Arora : Yes, Brian, as you know, thank you for the question, and thank you for your kind words. Look, we had the similar set of expectations last year going into the fiscal year. And we benefited from some price increases, as you know. We also benefited from some pull-through activities by customers because there were supply chain prices and people were trying to make sure,, they're stocking up. We just want to be prudent. We don't anticipate more price increases because our philosophy is we don't want to keep driving prices up. Because when you keep increasing prices, when supply chain settles down, you have to cut prices. And I don't want to be in that scenario where we're showing you tremendous volatility in our product revenue. So that's kind of one factor is the price normalization. The second factor is potential pull-in by customers because of supply chain constraints and ordering ahead. If you balance that out, we think the number is still in the low to high single-digits. But again, as I've told you from perhaps five years ago, we are focusing on Firewall as a Platform. The more I drive SASE, the more I drive virtual firewalls, the better off we are as transitioning our business. As we highlighted, 70% of our revenue now is predictable going into next quarter. We highlighted that 80% of our software subscription is coming from software. So we are trying to make sure we keep transforming this business and software business. We love our hardware business. It drives a lot of its installed base. It lies with lots of refreshes. It drives a lot of our advanced prevention capability. So please don't take away, that's not now a favorite child of ours. But at the same time, we are cautious and we're making sure we balance the growth in our hardware business with the thrust we're putting into SASE and Cloud and Cortex. Clay Bilby : Great. Next from Fatima Boolani of Citigroup with Saket Kalia next. Fatima Boolani : Nikesh, for you, if I calculate a rough back of the envelope math, you had roughly maybe 10% of your billings tied to a handful of transactions. So as I think about large deal dependency and $75 million, $100 million deals becoming the norm at Palo Alto, how do you put your head together with Dipak to sort put guardrails around the guidance as the business becomes a little bit more levered to some of these larger deals, especially given your scale? Nikesh Arora : Let me lay back. First of all, we were careful, we said mid-to-high 30s. So it's not exactly 10%. It's somewhere between 5% and 8%, if you will, if you were bringing back of the math envelope. But yes, 5% to 8%. But look, part of it is we also told we have 1,200 millionaire customers. I think in cybersecurity, that makes us the largest number of millionaire customers you're going to expect. There's a large amount of customers between that and the $1 million customers, 100 million and 1 million, there's a lot of people -- there are lots of numbers between 1 and 100. So you can expect we have people pretty much at every number. Part of it is a balancing act in terms of what deals we prioritize and what deals we focus on. Remember, $100 million deals don't go away. They just take longer. So we could get it done in Q1. We'll get it done in Q2. So our customer has a wake up one morning and saying, you know what that deal we have been discussing over the last nine months for $100, it's not going to happen. If typically it becomes a $60 million deal, you say it's going to happen in the following quarter. So our job is to have a lot more pipeline in our portfolio to make sure that we're able to bring enough of them in, to be able to keep you hungry analysts away from destroying our credibility or whatever the right phrase is. Have we got you convinced yet, Fatima or not? I'm still waiting. Fatima Boolani : I'm on the bullet train. Nikesh Arora : All right, good. Fantastic. Thank you. Clay Bilby : All right. Great. Next question from Saket Kalia of Barclays with Brent Thill next. Saket Kalia : Okay. Great. Echo my congrats on a very strong quarter. Dipak, maybe for you. You mentioned in your prepared remarks that you took the same approach with FY '23 guide as you did with FY '22, which was obviously very strong. So maybe the question for you is, as we all contemplate the impact of macro uncertainty for next year, how did you sort of think about that when you were kind of thinking about that billings guide for next year, which, again, was very strong at a higher base for '22? Dipak Golechha : Yes. I don't think there's anything different and I'm going to tell you, Saket, that's already -- that's not already in our prepared remarks. I mean, I think it's really a question of just dissecting what are the impacts of the macro, figuring out what supply chain-related, what's inflation-related, what's demand-related and then just making sure that we methodically work through it, like Nikesh and I and the leadership team have a lot of debates, right, during the course of the annual planning process, and then we just try to make sure that we're thinking through scenarios and having enough flexibility for different scenarios. But really nothing to add beyond the prepared remarks. Clay Bilby : Great. Next is Brent Thill of Jefferies with Andy Nowinski next. Joseph Gallo: You have Joe on for Brent. Congrats on the result. Maybe just a follow-up to that last question. Appreciate the extra prudence, and I know that it's your fiscal first quarter, but is there any reason why the growth rate would half? I know there's some duration in 4Q, but just maybe talk about the billings guidance as it relates to F 1Q? Dipak Golechha : So I think again, ultimately, we talked about how you've got to normalize it for some large deals. We did also take a price increase on August 1. I think, again, we're just trying to be prudent at the beginning of the fiscal year and make sure that we're not getting ahead of our skis. I mean the 20% to 21% is the fiscal year guide. I think we've guided a little bit higher in Q1, specifically, but I think -- yes, and still ahead of consensus. So I think we feel pretty good about the pipeline, all the metrics that we look at. Nikesh Arora : Important to understand the overall market context. You've got companies which are reducing guidance, companies which are cutting EPS guidance. There are companies which are warning a potential customer deal life cycles being smaller. So we're trying to make sure that we are prepared for both the upside and downside scenario. I think it's fair for us to be prudent in that market. Clay Bilby : Okay, great. Next, we've got Andy Nowinski of Wells Fargo with Joel Fishbein next. Andy Nowinski : Great. First, I just want to extend my congrats on a great quarter and the billings guidance, particularly in light of the much higher comp you have this year. So for a question, I wanted to ask about your win rates on Prisma SASE because none of your competitors have firewalls or other solutions to offer beyond their SASE solutions. So I'm wondering if the rest of your portfolio might actually be your most sustainable competitive advantage that's driving that growth in new logos you're seeing with Prisma SASE. Nikesh Arora : Andy, I think part of -- if you look at it historically, until about three years ago, we didn't have a SASE, we could actually go head-to-head with the industry leader, let's just say, right? What has happened in the last 1.5 years or two? We've become a force to reckon with. I'd say in the most -- the largest enterprise deal is head-to-head with two vendors. Very rarely do we see a third. This doesn't take a lot to guess who the second vendor is. And two years ago, we were not showing up to the party. Two years ago, getting one or two deals out of 10. Now we think we're in five to six out of 10 deals and our aspiration is next year to be 10 out of 10 deals. You know what, hopefully, if we can win half the deals that we're in, we'll be growing at big numbers like we did this year. So we think we are coming of age in our SASE business. We have a lot of respect for the other player in the market. We think we have a better solution technically. We're seeing that when enterprise architectures come to play where customers want to integrate a Zero Trust strategy across hardware, software and remote access driven solutions. We believe that we have a technical edge. At the same time, we made the early decision to deploy that on the public cloud. We actually are the only company that can deliver your SASE solution on the public cloud with redundancy. So GCP goes down, we hot switch to AWS. As AWS goes down with hot switch to GCP, so we give you the highest level SLA in the SASE business in the market today. Clay Bilby : All right. Next, we've got Joel Fishbein of Truist Securities, followed by Keith Bachman. Joel Fishbein : Nikesh, just wanted to follow up on Fed spending and SLED spending, particularly since Palo Alto is probably in the pull position to deal with the Zero Trust environment that the federal government's disposing a strategy around it, and I would love to just get an update. It seems like there's a lot of rhetoric, but not a lot of spending. Nikesh Arora : Joel, as you'll appreciate, what typically happens when a new administration comes into place. The first six months, they spend the time getting to know each other. The next six months, they write a lot of executive orders and then we get into implementation, if we're lucky in year two. So yes, we have seen great signs of alignment in the Fed market. We have seen some good executive orders to align towards more awareness around cybersecurity. As you know, the SEC is also looking at it how to make it a more relevant conversation and Board. So all the signs are headed in the right direction. The fiscal year close for Fed comes in, in the next 1.5 months. So we should hopefully see some activity in Q1 around that. And I think next year should be a better year for Fed spending, especially around Zero Trust and SASE and cloud. Clay Bilby : All right. Next is Keith Bachman, the BMO with Gregg Moskowitz to follow. Keith Bachman : Great. Lee, I want to bring you into the conversation for a second, if I could. Lots of good metrics around Cortex. And I was just wondering how you're thinking about the growth potential in Cortex and particularly with XSIAM coming in the first half, does that you think actually caused an acceleration in growth in Cortex? And Dipak, if I could just ask a clarification, sneak one in here. For the billings guide, are you assuming duration neutral in FY '23? Or any kind of assumptions around duration and pricing that we should be thinking about in that '20 to '21 billings guide when you compare this year to last year? Lee Klarich : Yes. Thanks for the question, Keith. The -- we saw another year of good traction with Cortex across XGR, XSOAR and Xpanse. And I anticipate that we'll continue to see that traction in FY '23 given the product innovation that we've driven and will continue to drive across those three products and the value they provide. When I think about XSIAM, I think of it as being the start of fairly exciting journey, but it's going to be a multiyear journey. I don't see it as being just a quick hit. It's a more architectural transformation. It is truly what I believe customers need but it will take a little bit longer for that to fully play out. And I'm very encouraged by the design partner program we ran, but there's -- we're going to see that play out over the course of the next year, and hopefully, that sets the foundation for the years to come. Keith Bachman : Okay. Great. Dipak Golechha : And then just to answer your question on duration and pricing, no significant changes on duration and no additional pricing beyond the ones that we've already announced. Recall August 1, we did have a price increase that was about 5% on our hardware. Clay Bilby : Right, Gregg Moskowitz, Mizuho Securities, followed by Matt Hedberg. Gregg Moskowitz : So Nikesh, at the beginning of your fiscal '22 year, you spoke about a more incremental period, a more moderate period, if you will, as it relates to acquisitions. But earlier, Lee also mentioned several opportunities for new modules and valuation multiples having generally come in, I'm curious how you're thinking about M&A in fiscal '23? Nikesh Arora : So we outlined that we -- it's harder to do M&A now than it was three or four years ago because we had such a wide canvas or blank canvas in terms of various opportunities where we could go make acquisitions today, we have to balance the idea of an acquisition to make sure that is it consistent with our product strategy. Is it an overlapping acquisition or is it a complementary acquisition where we can integrate over time. So that reduces the amount of the opportunity out there. As I've always said, we're very focused on product area acquisitions as opposed to go-to-market acquisitions because we have -- as you can see, from our ARR or NGS, $1.9 billion. We have the ability to go sell good stuff if we get good stuff from our product better than here. So I think we will continue to stay on the lookout and scan the market. We are not in the mindset of acquiring large deals. We're in the mindset of looking for great product teams that we can complementarily attach to our capabilities. So we keep scanning the market and if something shows up, we'll do it. But again, I don't think it has ever been a significant part of our effort in terms of our market cap. When we did the first $2.5 billion, the market cap was $20 million, $25 million, now it's north $50 million. So you can imagine it's a small scale relative to what the opportunity for the company is, and that's how we think about it. We're not jumping at the bit right now. The market -- I think it's kind of like -- the public market has rationalized, the private markets probably haven't yet. It's a bit like real estate and people remember the last the neighbor's house, what is sold at, they kind of forget what their house is worth. So until people realize true value of their house, it's going to be a little longer before acquisitions come into the security market again. Clay Bilby : Great. Matt Hedberg, RBC followed by Gray Powell. Matt Hedberg : Nikesh and team, congrats on the results. The success of your SASE portfolio is obviously impressive. I'm wondering, as you approach the fiscal year, are there things that you're doing from a go-to-market perspective to even drive higher cross-sell? I believe you have about 54,000 firewall customers and now just shy of 3,600 SASE customers. Just kind of curious how you think about maybe driving even more cross-sell what has obviously been the top growth? Nikesh Arora : So thank you for the question. It's a great question. It's something our management team has spent a lot of time thinking about. And what we are doing going into this fiscal year is we used to have SASE sales specialists. And what we've done is we have merged them into our core sales team, and we've been running boot camps for the last 6 to 8 weeks training everybody out in the field for SASE. So we're converting our entire core field team, our network security team into a SASE first team which is the way -- only way we can get amplification across 2,000 sellers and actually go make sure there's a SASE opportunity to be uncovered to every customer. So we think SASE's come of age. We think SASE is the linchpin towards our network security strategy. We think this is going to be a very, very large market in the next five to 10 years. And we say we're one of two vendors in the market who will be invited to every opportunity, and we hope to win our disproportionate share. Clay Bilby : Right. Yes. Great. Our last question for the day from Gray Powell with BTIG. Gray Powell : All right. And congratulations on the strong results. So yes, I guess I'll stick with the SASE theme. And I'd be really curious, I mean a lot of other companies that have reported earnings in the security space, they're talking about longer sales cycles, particularly for larger, more complex deals. How does that play into the Prisma SASE portfolio? Are you seeing any macro impact there, particularly in terms of pipeline? And then was that like a consideration in the NGS ARR guidance. Nikesh Arora : Look, Gray, as I said, first and foremost, the large complex deals take longer to get done. And SASE does take longer because customers -- SASE is just not buying a security and bolting it on. It's actually re-architecting your network access. It’s actually just how your laptop delves in into your work if you're using Palo Alto SASE or Prisma SASE. So it's kind of important because if your laptop doesn't get access to BTIG's infrastructure in trouble. So it becomes a network play as much as a security play. So teams take a little longer to get it done. So I think that's kind of part of the process, less so the macroeconomic concerns, if you will, it's really doing the technology transformation agreeing to do it as an organization. That's what takes a little longer. In terms of our guidance, look, there's a whole bunches of puts and takes that are going in there. There are secular tailwinds. We obviously have a sense of the pipeline going into next year. As Fatima asked, we did some big deals, guess what, we didn't do some big deals, right? You couldn't have done every deal, so there's a bunch of deals that are still waiting in the wings. Yes, they're larger, and they're binary that if they all don't come in, we'll have to go hustle. If they all come in, we'll be in a great place. But our job as management to just balance all these factors, you've got to balance inflation, supply chain, deal cycles, various product investments. So I think across the balance, if you look, we think our guidance is prudent across all of these factors where we think some of them might be better for us. Some of them may be worse. But on the margin, we think we can deliver the guidance as presented to you. Clay Bilby : Great. Thanks. That will conclude our Q&A. I'll turn it back over to Nikesh for his closing remarks. Nikesh Arora : Well, first of all, thank you, everyone, for your attention and your questions and for joining us. We look forward to seeing many of you after this in separate calls as well as upcoming conferences. I also want to thank our customers, partners and of course, most of all, our employees who make us the great place that we are. With that, go Palo Alto Networks.
PANW Ratings Summary
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Palo Alto Networks: A Leader in Cybersecurity

  • Palo Alto Networks (NASDAQ:PANW) has executed a 1-for-2 stock split, making its shares more accessible to a broader range of investors.
  • The company's stock price stands at $393.12, with a trading range for the day between $392.36 and $402.50.
  • With a market capitalization of approximately $128.98 billion, PANW showcases its strong position in the cybersecurity industry.

Palo Alto Networks, trading under the symbol NASDAQ:PANW, is a prominent name in the cybersecurity industry. Founded in 2005, the company has carved a niche for itself by offering a wide array of cybersecurity products through its "platformization" strategy. This approach has made it a key player in the sector, where cybersecurity is considered a critical investment due to its high-margin business model.

On December 16, 2024, PANW executed a 1-for-2 stock split, a move that has piqued the interest of investors. Stock splits can make shares more affordable and accessible to a broader range of investors, potentially increasing liquidity. As the split date approaches, many investors are evaluating the potential benefits of investing in PANW, given the essential nature of cybersecurity services.

Currently, PANW's stock is priced at $393.12, reflecting a decrease of $7.09 or approximately 1.77% today. The stock's trading range for the day has been between $392.36 and $402.50. Despite today's decline, the stock has shown resilience over the past year, with a high of $410.23 and a low of $260.09, indicating significant growth potential.

Palo Alto Networks boasts a market capitalization of approximately $128.98 billion, underscoring its strong position in the market. The company's trading volume today is 1,915,154 shares, suggesting active investor interest. As cybersecurity remains a critical concern for businesses worldwide, PANW's stock continues to be an attractive option for investors seeking exposure to this essential sector.

Palo Alto Networks (NASDAQ:PANW) Announces 2-for-1 Stock Split

  • Palo Alto Networks (NASDAQ:PANW) is set for a 2-for-1 stock split, aiming to make shares more affordable.
  • The stock has seen a 47% increase in its price this year, with significant growth ahead of the split.
  • Stock splits have sparked interest among investors, with notable companies like Nvidia experiencing substantial growth post-split.

Palo Alto Networks, trading on NASDAQ under the symbol PANW, is a prominent player in the cybersecurity industry. The company is set to undergo a 2-for-1 stock split on December 16, 2024. This means that for every share an investor currently holds, they will receive an additional share, effectively halving the price per share while maintaining the overall value of their investment.

Stock splits, like the one PANW is planning, have become less common in recent years. However, the past year has seen several notable splits, including those by Broadcom, Chipotle Mexican Grill, Sony, and Walmart, as highlighted by 24/7 Wall Street. One of the most anticipated was Nvidia's 10-for-1 split in June, which occurred during a period of fluctuating stock prices.

Despite the stock split, Nvidia's share price was more significantly impacted by investor concerns over delays in new chip shipments. Interestingly, Nvidia's stock has seen a remarkable 175% increase in 2024, with most of this growth occurring before the split. This trend has sparked renewed interest in stock splits and their potential benefits in the current market landscape.

Palo Alto Networks has experienced a significant 47% increase in its stock price this year. The stock is currently priced at $405.90, with a recent change of $2.87, reflecting a 0.71% increase. The stock has traded between a low of $402.62 and a high of $409.16 today, with the latter marking its highest price over the past year. The lowest price in the past year was $260.09.

The company's market capitalization stands at approximately $133.18 billion, with a trading volume of 1,934,449 shares for the day. The upcoming stock split could make shares more affordable and enhance liquidity, potentially attracting a wider range of investors. This development raises questions for investors about whether to invest now or wait until after the split.

Palo Alto Networks Tops Q4 Earnings and Provides Strong Guidance

Palo Alto Networks (NASDAQ:PANW) shares rose more than 2% pre-market today after the company delivered strong guidance after reporting fiscal fourth-quarter results that exceeded Wall Street expectations, driven by a surge in deal-making and increased demand for cybersecurity solutions.

The company posted earnings of $1.51 per share on $2.2 billion in revenue, outperforming analyst estimates of $1.41 per share and $2.16 billion in revenue.

The company's Next-Generation Security annual recurring revenue grew by 43% year-over-year, reaching $4.2 billion, as deal-making activity increased.

Looking forward, Palo Alto Networks projected fiscal first-quarter adjusted earnings between $1.47 and $1.49 per share, beating analyst estimates of $1.42 per share. Revenue guidance for the quarter is set between $2.10 billion and $2.13 billion, aligning with the consensus forecast.

For the full fiscal year 2025, the company expects adjusted earnings in the range of $6.18 to $6.31 per share, with revenue expected between $9.10 billion and $9.15 billion.

Palo Alto Networks' Fiscal Fourth Quarter Results Surpass Expectations

  • Palo Alto Networks (NYSE:PANW) reported adjusted earnings of $1.51 per share, exceeding Wall Street expectations.
  • Scotiabank upgraded Palo Alto Networks to Outperform, raising its price target from $337 to $385.
  • The company's performance reflects the growing demand for cybersecurity solutions and its strong position in the competitive landscape.

Palo Alto Networks (NYSE:PANW), a leading cybersecurity company, recently announced its fiscal fourth quarter results, which caught the attention of investors and analysts alike. The company, known for its advanced security solutions that protect organizations across cloud, network, and mobile devices, reported adjusted earnings of $1.51 per share. This figure notably surpassed the Wall Street expectations of $1.41 per share, as highlighted by Yahoo Finance. This performance underscores the company's robust operational efficiency and its ability to exceed analyst predictions, marking a significant achievement in its financial journey.

The positive earnings report comes at a time when cybersecurity is more critical than ever, with businesses and governments worldwide increasing their investments in security infrastructure to protect against growing cyber threats. Palo Alto Networks' ability to outperform expectations reflects not only the increasing demand for cybersecurity solutions but also the company's strong position in the competitive landscape. This performance could be a key driver in attracting more investors and customers to the company, bolstering its market position further.

Following this announcement, Scotiabank upgraded its rating on Palo Alto Networks to Outperform while maintaining a hold position previously. This upgrade, announced as the stock was trading at $333.23, signifies a vote of confidence in the company's future prospects. Scotiabank's decision to raise its price target for Palo Alto Networks from $337 to $385, as detailed by TheFly, further emphasizes the optimistic outlook on the company's performance. This adjustment by Scotiabank reflects a broader market recognition of Palo Alto Networks' growth potential and its ability to sustain momentum in the competitive cybersecurity industry.

The upgrade by Scotiabank, coupled with the company's impressive fiscal fourth quarter results, paints a promising picture for Palo Alto Networks. It suggests that the company is not only navigating the challenges of the cybersecurity market successfully but is also positioned for continued growth. The raised price target by Scotiabank indicates an expectation of upward movement in Palo Alto Networks' stock price, hinting at the potential for significant returns for investors.

Overall, Palo Alto Networks' recent achievements highlight its strength and resilience in a rapidly evolving market. The company's ability to exceed Wall Street expectations and the subsequent upgrade by Scotiabank underscore its solid financial health and the positive outlook for its future. As Palo Alto Networks continues to innovate and expand its offerings, it remains a key player in the cybersecurity space, well-positioned to capitalize on the growing demand for security solutions.

Palo Alto Networks Shares Plunge 6% on Weak Billings Outlook

Palo Alto Networks (NASDAQ:PANW) saw its shares fall by more than 6% in pre-market today as its underwhelming billings outlook overshadowed a solid fiscal third-quarter earnings performance.

The cybersecurity firm's revenue increased by 15% to $2.0 billion, surpassing both the analyst consensus of $1.97 billion and the previous year's $1.7 billion. Adjusted earnings per share (EPS) for the quarter came in at $1.32, beating the forecasted $1.25.

The company's remaining performance obligations grew by 23% year-over-year to $11.3 billion, slightly above the expected $11.28 billion. CEO Nikesh Arora attributed the strong results to customer interest in the company’s platform strategy, which incorporates artificial intelligence into security solutions.

CFO Dipak Golechha pointed to disciplined execution and investments in market and innovation as key factors driving the company's steady, profitable growth.

Looking ahead, Palo Alto Networks provided guidance for Q4 with an EPS range of $1.40 to $1.42, which is in line with the Street estimate of $1.41. Revenue is projected to be between $2.15 billion and $2.17 billion, matching the Street estimate of $2.16 billion.

However, the billings forecast for both the fourth quarter and the full fiscal year, with ranges of $3.43 billion to $3.48 billion for Q4 and $10.13 billion to $10.18 billion for the year, came in slightly below analyst expectations, contributing to the drop in stock price.

For the full fiscal year 2024, the company revised its guidance, projecting revenue between $7.99 billion and $8.01 billion, an increase from the previous range of $7.95 billion to $8.00 billion, compared to the Street estimate of $7.98 billion. Adjusted EPS is expected to be between $5.56 and $5.58, exceeding the consensus estimate of $5.52.

Palo Alto Networks' Fiscal Third-Quarter Earnings Overview

  • Palo Alto Networks reported an EPS of $1.32, surpassing the estimated EPS of $1.25 and marking the fourth consecutive quarter of beating consensus EPS estimates.
  • The company announced revenue of approximately $1.98 billion, a 15% increase from the previous year, exceeding both the estimated revenue and the Zacks Consensus Estimate.
  • Despite strong financial results, PANW shares dropped by more than 8% in extended trading, reflecting the complex dynamics of investor expectations and market sentiment.

Palo Alto Networks recently made headlines with its fiscal third-quarter earnings report, which not only surpassed analysts' expectations but also showcased the company's robust financial health and growth trajectory. As a leading entity in the cybersecurity sector, Palo Alto Networks has consistently demonstrated its ability to navigate the competitive landscape, outperforming estimates and reinforcing its market position. The company's latest earnings report is a testament to its operational efficiency and strategic initiatives aimed at driving growth.

On May 20, 2024, PANW reported an earnings per share (EPS) of $1.32, beating the estimated EPS of $1.25. This performance not only reflects an improvement from the previous year's earnings of $1.10 per share but also marks the fourth consecutive quarter where Palo Alto Networks has exceeded consensus EPS estimates. Such a streak of positive surprises, including a notable 5.60% earnings surprise this quarter, underscores the company's consistent operational excellence and ability to exceed market expectations.

In addition to its impressive EPS, Palo Alto Networks reported revenue of approximately $1.98 billion for the quarter, a figure that not only surpasses the estimated revenue of roughly $1.97 billion but also represents a significant 15% increase from the previous year. This revenue growth is a clear indicator of the company's expanding market presence and the increasing demand for its cybersecurity solutions. The reported revenue also exceeded the Zacks Consensus Estimate by 0.91%, marking the third time in the last four quarters that the company has outperformed consensus revenue estimates.

Despite these strong financial results, PANW shares experienced a more than 8% drop in extended trading following the announcement. This reaction may seem counterintuitive given the company's positive performance, but it highlights the complex dynamics of investor expectations and market sentiment. Additionally, Palo Alto Networks provided revenue guidance for the upcoming period that aligns closely with analysts' estimates, suggesting a steady outlook for its financial performance.

Palo Alto Networks' valuation metrics, such as its price-to-earnings (P/E) ratio of approximately 52.94 and price-to-sales (P/S) ratio of around 18.02, indicate a premium valuation compared to some of its peers. These ratios reflect investors' willingness to pay a higher price for the company's shares, based on its growth prospects and market position. The enterprise value to sales (EV/Sales) and enterprise value to operating cash flow (EV/OCF) ratios further highlight the company's premium valuation in the market. Despite a moderate level of debt, as indicated by a debt-to-equity (D/E) ratio of around 0.34, Palo Alto Networks maintains a solid financial standing, with an earnings yield of roughly 1.89% and a current ratio of approximately 0.84, pointing to potential challenges in covering short-term liabilities with short-term assets.

Palo Alto Networks Fiscal Third-Quarter Earnings Preview

  • Projected quarterly revenue of $1.97 billion and an EPS estimate of $1.25, highlighting the financial health and expectations for Palo Alto Networks.
  • The company's adjustment of its outlook is due to "spending fatigue" among clients, setting a cautious tone for the upcoming earnings amidst economic headwinds.
  • Focus on Palo Alto Networks' "platformization" strategy as a means to consolidate its position as a leading cybersecurity solutions provider.

Palo Alto Networks (NASDAQ:PANW) is on the brink of revealing its fiscal third-quarter earnings, a moment that has garnered significant attention from Wall Street and investors alike. The cybersecurity behemoth, known for its comprehensive suite of security solutions, faces a critical juncture as it navigates through an environment marked by client spending concerns. With an earnings per share (EPS) estimate set at $1.25 and projected quarterly revenue of $1.97 billion, the stakes are high. This upcoming earnings report is not just a reflection of the past quarter's performance but a litmus test for the company's strategic direction amidst economic headwinds.

The backdrop of this earnings release is particularly intriguing, given Palo Alto Networks' recent adjustment of its outlook, citing "spending fatigue" among its clientele. This adjustment has set the stage for a quarter where, despite anticipated year-over-year growth in revenue and net income, there's an expectation of a sequential dip from the second quarter. This scenario underscores the challenges faced by the cybersecurity sector at large, where customer spending patterns are increasingly unpredictable. Analysts, as compiled by Visible Alpha, are keenly awaiting not just the numbers but also insights into how Palo Alto Networks plans to navigate these choppy waters.

A focal point of interest for those tracking PANW's performance is the company's "platformization" strategy. This ambitious approach aims to consolidate its position as a one-stop cybersecurity solutions provider. By offering a broad spectrum of services under a unified platform, Palo Alto Networks is betting on its ability to attract and retain customers looking for comprehensive security solutions. This strategy is pivotal, especially at a time when businesses are looking to streamline their cybersecurity investments in response to broader economic pressures.

The financial metrics surrounding Palo Alto Networks further paint a picture of a company at a crossroads. With a price-to-earnings (P/E) ratio of approximately 44.47, investors are showing a willingness to pay a premium for the company's earnings, a sign of confidence in its future growth prospects. However, the price-to-sales (P/S) and enterprise value-to-sales (EV/Sales) ratios suggest a market that is closely scrutinizing the company's revenue generation capabilities. Moreover, the debt-to-equity (D/E) ratio of about 0.50 indicates a balanced approach to financing, leveraging both debt and equity in its capital structure. These financial indicators are crucial for investors as they assess the company's valuation, profitability, and financial health in the lead-up to the earnings announcement.

As Palo Alto Networks (NASDAQ:PANW) prepares to unveil its fiscal third-quarter results, the broader narrative extends beyond the numbers. It's about the company's ability to adapt and thrive in a fluctuating economic landscape, the effectiveness of its strategic initiatives, and its ongoing quest to redefine the cybersecurity industry. With projected revenues of $1.97 billion and an EPS estimate of $1.25, all eyes are on PANW as it seeks to reassure stakeholders of its resilience and strategic foresight in an ever-evolving market.