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Palo Alto Networks (PANW - Free Report) reported strong second-quarter fiscal 2023 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate and improved year over year.
The company reported non-GAAP earnings of $1.05 per share, beating the Zacks Consensus Estimate of 78 cents. The bottom line improved 81% from the year-ago quarter’s non-GAAP earnings of 58 cents per share.
Palo Alto’s fiscal second-quarter revenues of $1.66 billion surpassed the Zacks Consensus Estimate of $1.65 billion. The top line grew 26% from the year-ago reported figure.
The top line was aided by several deal wins and increased adoption of Palo Alto’s Next-Generation Security (NGS) platforms driven by the hybrid work culture and the heightened need for stronger security.
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Product revenues increased 15% year over year to $352.9 million and contributed to 21.3% of total revenues. The company’s subscription and support revenues, which accounted for 78.7% of total revenues, improved 29.1% to $1.30 billion.
Billings increased 26% to $2.03 billion. Deferred revenues at the end of the fiscal second quarter were $3.94 billion. Palo Alto’s remaining performance obligation climbed to $8.8 billion, reflecting a year-over-year increase of 39%.
Palo Alto’s NGS annualized recurring revenues were $2.33 billion in the reported quarter compared with $2.11 billion in the previous quarter and $1.43 billion in the year-ago quarter.
Non-GAAP gross profits increased 28.1% to $1.25 billion. Non-GAAP gross margin expanded 150 basis points (bps) to 75.5% with easing global supply chain pressures.
Non-GAAP operating income rose 55% to $376.8 million while non-GAAP operating margin expanded 440 bps to 22.8%.
Balance Sheet & Cash Flow
Palo Alto exited the fiscal second-quarter with cash, cash equivalents and short-term investments of $3.35 billion, down from $3.80 billion at the end of the previous quarter. As of Jan 31, 2023, the company had a long-term operating lease liabilities of $274.2 million.
PANW generated an operating cash flow of $694.6 million and a non-GAAP adjusted free cash flow of $685.2 million during the fiscal second quarter. Non-GAAP adjusted free cash flow margin came in at 41.4%.
Raised Guidance
Management of Palo Alto raised the fiscal 2023 guidance for billings, non-GAAP earnings and adjusted free cash flow margin, while it still anticipates fiscal revenues in the range of $6.85-$6.91 billion. This suggests top-line growth of 25-26% from the fiscal 2022 level.
Total billings of the company are now estimated to be $9.10-$9.20 for fiscal 2023, indicating a year-over-year increase of 22-23%. Previously, billings were expected to be in the $8.95-$9.10 billion band, which suggested a year-over-year increase of 20-22%.
Palo Alto projects non-GAAP earnings to be in the $3.97-$4.03 per share band compared with the prior guided range of $3.37-$3.44 per share.
Non-GAAP adjusted free cash flow margin forecast is also raised from the range of 34.5-35.5% to 36.5-37.5% band for fiscal 2023.
For the third quarter of fiscal 2023, Palo Alto projects revenues between
$1.695 billion and $1.725 billion, suggesting year-over-year growth of 22-24%. Total billings are anticipated between $2.20 billion and $2.25 billion, indicating an increase of 22-25% from the year-ago quarter. Non-GAAP earnings are projected to be 90-94 cents per share.
Zacks Rank & Key Picks
Palo Alto carries a Zacks Rank #3 (Hold). Shares of PANW have climbed 5.3% over the past year.
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Palo Alto (PANW) Outpaces Q2 Earnings & Revenue Expectations
Palo Alto Networks (PANW - Free Report) reported strong second-quarter fiscal 2023 results, wherein both earnings and revenues surpassed the respective Zacks Consensus Estimate and improved year over year.
The company reported non-GAAP earnings of $1.05 per share, beating the Zacks Consensus Estimate of 78 cents. The bottom line improved 81% from the year-ago quarter’s non-GAAP earnings of 58 cents per share.
Palo Alto’s fiscal second-quarter revenues of $1.66 billion surpassed the Zacks Consensus Estimate of $1.65 billion. The top line grew 26% from the year-ago reported figure.
The top line was aided by several deal wins and increased adoption of Palo Alto’s Next-Generation Security (NGS) platforms driven by the hybrid work culture and the heightened need for stronger security.
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote
Quarterly Details
Product revenues increased 15% year over year to $352.9 million and contributed to 21.3% of total revenues. The company’s subscription and support revenues, which accounted for 78.7% of total revenues, improved 29.1% to $1.30 billion.
Billings increased 26% to $2.03 billion. Deferred revenues at the end of the fiscal second quarter were $3.94 billion. Palo Alto’s remaining performance obligation climbed to $8.8 billion, reflecting a year-over-year increase of 39%.
Palo Alto’s NGS annualized recurring revenues were $2.33 billion in the reported quarter compared with $2.11 billion in the previous quarter and $1.43 billion in the year-ago quarter.
Non-GAAP gross profits increased 28.1% to $1.25 billion. Non-GAAP gross margin expanded 150 basis points (bps) to 75.5% with easing global supply chain pressures.
Non-GAAP operating income rose 55% to $376.8 million while non-GAAP operating margin expanded 440 bps to 22.8%.
Balance Sheet & Cash Flow
Palo Alto exited the fiscal second-quarter with cash, cash equivalents and short-term investments of $3.35 billion, down from $3.80 billion at the end of the previous quarter. As of Jan 31, 2023, the company had a long-term operating lease liabilities of $274.2 million.
PANW generated an operating cash flow of $694.6 million and a non-GAAP adjusted free cash flow of $685.2 million during the fiscal second quarter. Non-GAAP adjusted free cash flow margin came in at 41.4%.
Raised Guidance
Management of Palo Alto raised the fiscal 2023 guidance for billings, non-GAAP earnings and adjusted free cash flow margin, while it still anticipates fiscal revenues in the range of $6.85-$6.91 billion. This suggests top-line growth of 25-26% from the fiscal 2022 level.
Total billings of the company are now estimated to be $9.10-$9.20 for fiscal 2023, indicating a year-over-year increase of 22-23%. Previously, billings were expected to be in the $8.95-$9.10 billion band, which suggested a year-over-year increase of 20-22%.
Palo Alto projects non-GAAP earnings to be in the $3.97-$4.03 per share band compared with the prior guided range of $3.37-$3.44 per share.
Non-GAAP adjusted free cash flow margin forecast is also raised from the range of 34.5-35.5% to 36.5-37.5% band for fiscal 2023.
For the third quarter of fiscal 2023, Palo Alto projects revenues between
$1.695 billion and $1.725 billion, suggesting year-over-year growth of 22-24%.
Total billings are anticipated between $2.20 billion and $2.25 billion, indicating an increase of 22-25% from the year-ago quarter. Non-GAAP earnings are projected to be 90-94 cents per share.
Zacks Rank & Key Picks
Palo Alto carries a Zacks Rank #3 (Hold). Shares of PANW have climbed 5.3% over the past year.
Some better-ranked stocks from the broader Computer and Technology sector are Airbnb (ABNB - Free Report) , Baidu (BIDU - Free Report) , and Fabrinet (FN - Free Report) . While Airbnb and Fabrinet sport a Zacks Rank #1 (Strong Buy), Baidu carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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ABNB's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 57.2%. Shares of the company have declined 22.1% in the past year.
The Zacks Consensus Estimate for Fabrinet's third-quarter fiscal 2023 earnings has been revised 7 cents upward to $1.90 per share over the past 30 days. For fiscal 2023, earnings estimates have moved north by 24 cents to $7.71 per share in the past 30 days.
FN’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing once, the average surprise being 5.1%. Shares of the company have jumped 22.4% in the past year.
The Zacks Consensus Estimate for Baidu’s fourth-quarter 2022 earnings has been revised 49 cents southward to $2.14 per share over the past 30 days. For 2022, earnings estimates have dropped by 3.4% to $8.64 per share over the past 30 days.
BIDU’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 50.2%. Shares of the company have lost 7.2% in the past year.