Palo Alto Networks shares rise on earnings beat and revised forecast

SECURITY

Shares in Palo Alto Networks Inc. rose strongly in late trading after the network management and security firm delivered an earnings beat and lifted its earnings forecast for the year ahead.

For its fiscal second quarter that ended Jan. 31, Palo Alto Networks reported net income before costs such as stock compensation of $331.7 million, or $1.05 per diluted share, up from $185 million or 58 cents a share in the same quarter of last year. Revenue rose 26%, to $1.7 billion. Analysts had been expecting earnings per share of 78 cents on revenue of $1.65 billion.

Total billings in the quarter rose 26%, to $2.03 billion, and as of the end of the quarter, remaining performance obligations sat at $8.8 billion, up 39%. Operating income in the quarter rose 55% year-over-year, to $377 million, and adjusted free cash flow also rose 55%, to $685 million. The company also noted that it was profitable on a net basis.

The strong figures were driven by new deals, with Palo Alto saying it saw strong growth in all market segments. The number of deals the company signed over under $5 million rose 84% in the quarter by volume and 132% by value, while deals under $10 million increased by 144% and 196%, respectively.

Notably, Palo Alto Networks attributes its strong growth as representative of the “early days of consolidation in cybersecurity.” In its earnings presentation, the company highlighted themes driving consolidation, such as zero trust, cloud and security operations center transformation.

“We continue to see our teams execute well in the midst of macroeconomic challenges, helping customers consolidate their security architectures,” Nikesh Arora, chairman and chief executive officer of Palo Alto Networks, said in a statement. “The performance of our software-based and cloud-delivered portfolio validates the significant investments we have made over the last several years and has enabled us to raise our billings and NGS ARR guidance.”

Looking ahead, Palo Alto Networks forecasts an adjusted profit of of 90 to 94 cents a share for its fiscal third quarter on revenue of $1.695 billion to $1.725 billion. Analysts had expected 78 cents and $1.74 billion. For its full fiscal year 2023, the company expects adjusted earnings of $3.97 to $4.03 a share on revenue of $6.85 billion to $6.91 billion. Analysts had forecast an adjusted profit of $3.42.

Investors liked the strong earnings beat and a higher-than-expected outlook, and shares in Palo Alto Networks rose more than 7% after the close of regular trading.

Image: Palo Alto Networks