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Palo Alto Networks, Inc. (PANW - Free Report) reported better-than-expected results for the second quarter of fiscal 2024. The company reported non-GAAP earnings of $1.46 per share for the second quarter, beating the Zacks Consensus Estimate of $1.30. The bottom line improved 39% from the year-ago quarter’s non-GAAP earnings of $1.05 per share and came toward the higher end of the company’s earlier guidance range of $1.29-$1.31.
Palo Alto’s second-quarter revenues of $1.98 billion beat the Zacks Consensus Estimate of $1.97 billion and grew 19% from the year-ago reported figure. Second-quarter revenues also came toward the higher end of management’s previously provided guidance range of $1.955-$1.985 billion.
The top line was primarily driven by growth across the Products, Services and Subscription segments. Additionally, the increased adoption of Palo Alto’s Next-Generation Security platforms, driven by the hybrid work culture and the heightened need for stronger security, also aided second-quarter results.
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, building sales capability, platform integration and continued investments in the go-to-market strategy.
Billings increased 16% to $2.35 billion in the second quarter and came within the company’s projection of $2.335-$2.385 billion.
Despite reporting stronger-than-expected second-quarter results, shares of Palo Alto plunged 21% during Tuesday’s extended trading session as the company lowered revenue and billings forecasts for fiscal 2024, sparking concerns over IT spending by its customers.
Before delving deeper into guidance, let’s discuss the second-quarter performance first.
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Product revenues increased 10.7% year over year to $390.7 million and contributed to 19.8% of the total revenues. The company’s Subscription and Support revenues, which accounted for 80.2% of the total revenues, improved 21.7% to $1.58 billion.
Deferred revenues at the end of the fiscal second quarter were $4.92 billion. Palo Alto’s remaining performance obligation climbed to $10.8 billion, reflecting a year-over-year increase of 22%.
Palo Alto’s next-generation security annualized recurring revenues were $3.49 billion in the reported quarter compared with $3.23 billion in the previous quarter and $2.33 billion in the year-ago quarter.
Non-GAAP gross profits increased 23.3% to $1.54 billion. The non-GAAP gross margin expanded 250 basis points (bps) to 78%, primarily driven by a higher software mix, normalization in the supply-chain environment and some efficiencies in customer support.
The non-GAAP operating income rose 49.7% to $564.2 million. Meanwhile, the non-GAAP operating margin expanded 580 bps to 28.6% compared with the previous quarter.
Balance Sheet & Cash Flow
Palo Alto exited the fiscal second quarter with cash, cash equivalents and short-term investments of $3.37 billion, up from $3.89 billion at the end of the previous quarter. As of Jan 31, 2024, the company had long-term operating lease liabilities of $362.7 million.
PANW generated an operating cash flow of $690 million and a non-GAAP adjusted free cash flow of $654.8 million in the fiscal second quarter. The non-GAAP adjusted free cash flow margin for the second quarter came in at 33.2%. In the first half of fiscal 2024, the company generated operating cash flow of $2.22 billion and a non-GAAP adjusted free cash flow of $2.14 billion.
Lowered Fiscal 2024 Guidance
Palo Alto lowered its fiscal 2024 guidance for revenues and billings. The company now projects revenues between $7.95 billion and $8 billion, down from the earlier guidance range of $8.15-$8.20 billion. Similarly, the guidance range for fiscal 2024 billings has been lowered to $10.1-$10.2 billion from $10.7-$10.8 billion anticipated earlier.
Nonetheless, Palo Alto raised its non-GAAP earnings forecast to the $5.45-$5.55 per share band from the $5.40-$5.53 per share range anticipated previously. The company also raised its non-GAAP operating margin guidance for fiscal 2024 to 26.5-27% from 26-26.5% projected earlier.
The guidance range for the non-GAAP adjusted free cash flow margin has been revised upward to 38-39% from 37-38% forecasted previously. The projection for next-generation security ARR has been kept unchanged at $3.95-$4 billion.
Palo Alto initiated guidance for the third quarter. For the third quarter of fiscal 2024, PANW projects revenues between $1.95 billion and $1.98 billion, suggesting year-over-year growth of 13-15%. Total billings are anticipated between $2.3 billion and $2.35 billion, indicating an increase of 2-4% from the year-ago quarter. Non-GAAP earnings are projected in the range of $1.24-$1.26 per share.
Zacks Rank & Stocks to Consider
Palo Alto currently carries a Zacks Rank #4 (Sell). Shares of PANW have surged 119.3% over the trailing 12 months.
The Zacks Consensus Estimate for CrowdStrike’s fiscal 2024 earnings has been revised a penny upward to $2.95 per share in the past 30 days, suggesting year-over-year growth of 91.6%. The long-term estimated earnings growth rate for the stock stands at 36.1%. Shares of CRWD have jumped 187.9% over the past year.
The Zacks Consensus Estimate for Amazon’s 2024 earnings has been revised upward by 39 cents to $4.03 per share in the past 30 days, which calls for an increase of 39% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 28.1%. AMZN stock has returned 76.6% over the past year.
The consensus mark for Meta’s 2024 earnings has been revised upward by 10.8% to $19.62 per share over the past 30 days, indicating a 31.9% increase from 2023. It has a long-term earnings growth expectation of 19.5%. In the trailing 12 months, META stock has surged 174.1%.
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Palo Alto (PANW) Q2 Earnings Beat, Stock Plunges on Guidance Cut
Palo Alto Networks, Inc. (PANW - Free Report) reported better-than-expected results for the second quarter of fiscal 2024. The company reported non-GAAP earnings of $1.46 per share for the second quarter, beating the Zacks Consensus Estimate of $1.30. The bottom line improved 39% from the year-ago quarter’s non-GAAP earnings of $1.05 per share and came toward the higher end of the company’s earlier guidance range of $1.29-$1.31.
Palo Alto’s second-quarter revenues of $1.98 billion beat the Zacks Consensus Estimate of $1.97 billion and grew 19% from the year-ago reported figure. Second-quarter revenues also came toward the higher end of management’s previously provided guidance range of $1.955-$1.985 billion.
The top line was primarily driven by growth across the Products, Services and Subscription segments. Additionally, the increased adoption of Palo Alto’s Next-Generation Security platforms, driven by the hybrid work culture and the heightened need for stronger security, also aided second-quarter results.
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, building sales capability, platform integration and continued investments in the go-to-market strategy.
Billings increased 16% to $2.35 billion in the second quarter and came within the company’s projection of $2.335-$2.385 billion.
Despite reporting stronger-than-expected second-quarter results, shares of Palo Alto plunged 21% during Tuesday’s extended trading session as the company lowered revenue and billings forecasts for fiscal 2024, sparking concerns over IT spending by its customers.
Before delving deeper into guidance, let’s discuss the second-quarter performance first.
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote
Second-Quarter Performance
Product revenues increased 10.7% year over year to $390.7 million and contributed to 19.8% of the total revenues. The company’s Subscription and Support revenues, which accounted for 80.2% of the total revenues, improved 21.7% to $1.58 billion.
Deferred revenues at the end of the fiscal second quarter were $4.92 billion. Palo Alto’s remaining performance obligation climbed to $10.8 billion, reflecting a year-over-year increase of 22%.
Palo Alto’s next-generation security annualized recurring revenues were $3.49 billion in the reported quarter compared with $3.23 billion in the previous quarter and $2.33 billion in the year-ago quarter.
Non-GAAP gross profits increased 23.3% to $1.54 billion. The non-GAAP gross margin expanded 250 basis points (bps) to 78%, primarily driven by a higher software mix, normalization in the supply-chain environment and some efficiencies in customer support.
The non-GAAP operating income rose 49.7% to $564.2 million. Meanwhile, the non-GAAP operating margin expanded 580 bps to 28.6% compared with the previous quarter.
Balance Sheet & Cash Flow
Palo Alto exited the fiscal second quarter with cash, cash equivalents and short-term investments of $3.37 billion, up from $3.89 billion at the end of the previous quarter. As of Jan 31, 2024, the company had long-term operating lease liabilities of $362.7 million.
PANW generated an operating cash flow of $690 million and a non-GAAP adjusted free cash flow of $654.8 million in the fiscal second quarter. The non-GAAP adjusted free cash flow margin for the second quarter came in at 33.2%. In the first half of fiscal 2024, the company generated operating cash flow of $2.22 billion and a non-GAAP adjusted free cash flow of $2.14 billion.
Lowered Fiscal 2024 Guidance
Palo Alto lowered its fiscal 2024 guidance for revenues and billings. The company now projects revenues between $7.95 billion and $8 billion, down from the earlier guidance range of $8.15-$8.20 billion. Similarly, the guidance range for fiscal 2024 billings has been lowered to $10.1-$10.2 billion from $10.7-$10.8 billion anticipated earlier.
Nonetheless, Palo Alto raised its non-GAAP earnings forecast to the $5.45-$5.55 per share band from the $5.40-$5.53 per share range anticipated previously. The company also raised its non-GAAP operating margin guidance for fiscal 2024 to 26.5-27% from 26-26.5% projected earlier.
The guidance range for the non-GAAP adjusted free cash flow margin has been revised upward to 38-39% from 37-38% forecasted previously. The projection for next-generation security ARR has been kept unchanged at $3.95-$4 billion.
Palo Alto initiated guidance for the third quarter. For the third quarter of fiscal 2024, PANW projects revenues between $1.95 billion and $1.98 billion, suggesting year-over-year growth of 13-15%. Total billings are anticipated between $2.3 billion and $2.35 billion, indicating an increase of 2-4% from the year-ago quarter. Non-GAAP earnings are projected in the range of $1.24-$1.26 per share.
Zacks Rank & Stocks to Consider
Palo Alto currently carries a Zacks Rank #4 (Sell). Shares of PANW have surged 119.3% over the trailing 12 months.
Some better-ranked stocks from the broader technology sector are CrowdStrike Holdings (CRWD - Free Report) , Amazon.com (AMZN - Free Report) and Meta Platforms (META - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CrowdStrike’s fiscal 2024 earnings has been revised a penny upward to $2.95 per share in the past 30 days, suggesting year-over-year growth of 91.6%. The long-term estimated earnings growth rate for the stock stands at 36.1%. Shares of CRWD have jumped 187.9% over the past year.
The Zacks Consensus Estimate for Amazon’s 2024 earnings has been revised upward by 39 cents to $4.03 per share in the past 30 days, which calls for an increase of 39% on a year-over-year basis. The long-term expected earnings growth rate for the stock is pegged at 28.1%. AMZN stock has returned 76.6% over the past year.
The consensus mark for Meta’s 2024 earnings has been revised upward by 10.8% to $19.62 per share over the past 30 days, indicating a 31.9% increase from 2023. It has a long-term earnings growth expectation of 19.5%. In the trailing 12 months, META stock has surged 174.1%.