Another earnings report saw Palo Alto Networks selling again in after-hours trading. However, as with the two announcements ahead of Monday night’s earnings call, we view the dip as a buying opportunity for long-term investors. The cybersecurity company’s third-quarter fiscal 2024 revenue rose 15% year over year to $1.985 billion, beating the LSEG consensus estimate of $1.967 billion. Adjusted earnings per share for the three months ended April 30 rose 20% to $1.32, beating expectations of $1.25, according to LSEG data. Total claims rose just 3% from a year earlier to $2.33 billion, below expectations of $2.34 billion, according to FactSet. However, Palo Alto’s remaining performance obligation (RPO) growth accelerated to 23% year over year, from 22% in the previous quarter. Palo Alto Networks Why we own our company: We believe cybersecurity is a long-term growth market because bad guys are relentless and businesses can’t afford not to invest in their defense. It’s a never-ending arms race. In particular, Palo Alto Networks believes it is uniquely positioned to win due to its best-in-class tools and broad product portfolio that allow it to provide a comprehensive “platform” solution to cybersecurity. Competitors: CrowdStrike, Fortinet, Cisco Systems Last Purchased: April 8, 2024 Started: February 15, 2023 Conclusion Despite what the stock price reaction suggests, it was a strong quarter for Palo Alto Networks. did. And we ultimately tend to view declines in stock prices as buying opportunities, just as we did in November and February. The trends in claims aren’t what Wall Street wants, but the question for investors is: Do you agree with CEO Nikesh Arora’s view that invoice amounts are not as meaningful a metric as they once were and that we should instead focus on remaining performance obligations?Trends? This is a key issue that is sure to be fought over by bulls and bears, as RPOs have been accelerating over time while claims have slowed significantly. In our view, Aurora’s reasoning is valid. Billed amount represents the total amount actually billed for a particular period. RPO represents the total amount committed during a quarter. Understandably, investors prefer more specific invoices. After all, things like termination and cancellation are a risk to the company that will actually realize his RPO as revenue in the future. The problem with current claims is that they are costly thanks to the highest federal funds rate in 20 years, leading to increased negotiations over claim terms and financing options. As a result, we understand management’s desire to de-emphasize billing and instead focus on RPO. While we can’t completely ignore billing fluctuations, the slight increase in RPO growth is very encouraging. It’s also worth noting that management actually increased the billing backlog in the third quarter. This indicates strong demand despite some noise in the reported numbers. Against this backdrop, management has a positive outlook for the future, with fourth-quarter sales and profits expected to be in line with expectations. The bill outlook is a bit light, but again, I would argue that the results and guidance on this metric should be taken with a grain of salt in this high interest rate world. This is especially true given the discrepancy between the bill and his RPO. On the earnings call, Arora provided a positive update on the company’s decision to accelerate its “platformization” strategy, sending the stock plummeting 28% in the single session following the February earnings report. Essentially, management is offering concessions to customers who used multiple cybersecurity vendors to encourage them to migrate to Palo Alto’s platform. The company has decided to accept short-term pain in hopes of securing long-term profits, and growth will accelerate once the promotional period is over. “Despite concerns about our platforming approach since last quarter, customer feedback has been encouraging. We’ve started far more conversations around platforming than we anticipated.” Arora said. “If meetings are a measure of success, the number of meetings is up 30%, and a large portion of that is focused on platform opportunities. So demand is strong and my prediction is that going forward, That trend is likely to continue for the next several quarters. ” These comments by Mr. Arora reflect our opportunistic view of the stock price decline in after-hours trading. What I heard over the phone was very encouraging, except for the weak points in the billing. The company has large, long-term contracts in place, and customers are open to the idea of platforming and clearly understand the need for it. Especially now, there are more bad actors abusing the power of artificial intelligence. On the call, management highlighted several deals where Palo Alto has been able to outpace its competitors thanks to its ability to deliver not only best-in-class solutions, but actually platform strategies rather than piecemeal solutions. Arora also provided a bullish update on efforts with Palo Alto and UnitedHealth in response to the devastating cyberattack at its Change Healthcare subsidiary, although he did not directly name the companies. “A large healthcare company experienced a breach and turned to our Unit 42 incident response services. After we helped the customer remediate and get back online, we were able to educate the customer on the benefits of platforming. ” said Arora. “Customers have fully platformed with us and standardized on our network security, Prisma Cloud, and Cortex. This transaction is the largest in Palo Alto Networks history with a total contract value of approximately $150 million. In general, there is no doubt that cybersecurity is a long-term growth market and will continue to be in demand. At the company level, we believe that Palo Alto Networks has both the tools to respond to customer needs and a good strategy to ensure we maintain customer needs. We will continue to be a top player. Management notes that discussions about platforming are materializing faster than expected, so they are not too worried about Monday night’s stock price movement and expect long-term upside going forward. ing. At the same time, we recognize that Wall Street is currently focused on bills. That’s why we’re keeping Palo Alto’s rating at 2 as we look for the stock to stabilize before buying back stocks that sold high last week ahead of the report. We exercised discipline in selling as the stock had risen more than 17% in the approximately six weeks prior to the transaction. This is another reason why we can look at sales from a buyer’s perspective. Guidance For the fourth quarter of fiscal 2024, the company expects (all estimates from FactSet): Total billings of $3.43 billion to $3.48 billion. range, slightly above estimates at the midpoint of $3.45 billion. Total revenue was between $2.15 billion and $2.17 billion, in line with interim estimates of $2.16 billion. Non-GAAP earnings per share are expected to be in the range of $1.40 to $1.42, consistent with the midpoint estimate of $1.41. For the full year 2024, management expects the following: Total claims ranged from $10.13 billion to $10.18 billion, a slight increase at the midpoint compared to the previous range of $10.1 billion to $10.2 billion. Investors may be questioning the high-end pullback. At the midpoint, the revised guide shows it is also off the $10.17 billion the Street was seeking. Total revenue was $7.99 billion to $8.01 billion, up from $7.95 billion to $8.0 billion and above expectations of $7.99 billion. Non-GAAP earnings per share are expected to be in the range of $5.56 to $5.58, up from the prior range of $5.45 to $5.55. This beats the consensus estimate of $5.52 per share. Adjusted free cash flow margin was 38.5% to 39%, an improvement from previous guidance of 38% to 39%. (Jim Cramer’s Charitable Trust is long PANW. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you receive trade alerts before Jim makes a trade. I will receive it. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in a charitable trust’s portfolio. If Jim talks about a stock on his CNBC TV, he will wait 72 hours before executing the trade after issuing a trade alert. 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A sign outside Palo Alto Networks headquarters in Santa Clara, California, USA, on Thursday, May 13, 2021.
David Paul Morris | Bloomberg | Getty Images
New financial results announcement, selling again in after-hours trading Palo Alto Networks. However, as with the two announcements ahead of Monday night’s earnings call, we view the dip as a buying opportunity for long-term investors.
