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Palo Alto Networks's (NASDAQ:PANW) Q2 Earnings Results: Revenue In Line With Expectations But Stock Drops 12.9%

Published 2024-02-20, 04:10 p/m
Updated 2024-02-20, 04:16 p/m
Palo Alto Networks's (NASDAQ:PANW) Q2 Earnings Results: Revenue In Line With Expectations But Stock Drops 12.9%

Stock Story -

Cybersecurity provider Palo Alto Networks (NASDAQ:PANW (NASDAQ:PANW)) reported results in line with analysts' expectations in Q2 FY2024, with revenue up 19.3% year on year to $1.98 billion.

Is now the time to buy Palo Alto Networks? Find out by reading the original article on StockStory.

Palo Alto Networks (PANW) Q2 FY2024 Highlights:

  • Revenue: $1.98 billion vs analyst estimates of $1.97 billion (small beat)
  • EPS (non-GAAP): $1.46 vs analyst estimates of $1.30 (12.2% beat)
  • Revenue Guidance for Q3 2024 is $1.97 billion at the midpoint, below analyst estimates of $2.04 billion (billings guidance for the period also missed expectations)
  • The company dropped its revenue guidance for the full year from $8.18 billion to $7.98 billion at the midpoint, a 2.4% decrease (billings guidance for the period also missed expectations)
  • Gross Margin (GAAP): 74.7%, up from 71.8% in the same quarter last year
  • Market Capitalization: $115.5 billion
"Our leadership across all of our three platforms and growing cross-platform adoption puts us in a strong and unique position," said Nikesh Arora, chairman and CEO of Palo Alto Networks.

Founded in 2005 by cybersecurity engineer Nir Zuk, Palo Alto Networks (NASDAQ:PANW) makes hardware and software cybersecurity products that protect companies from cyberattacks, breaches, and malware threats.

Network SecurityAlmost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. The migration of businesses to the cloud and employees working remotely in insecure environments is increasing demand modern cloud-based network security software, which offers better performance at lower cost than maintaining the traditional on-premise solutions, such as expensive specialized firewall hardware.

Sales GrowthAs you can see below, Palo Alto Networks's revenue growth has been strong over the last two years, growing from $1.32 billion in Q2 FY2022 to $1.98 billion this quarter.

This quarter, Palo Alto Networks's quarterly revenue was once again up 19.3% year on year. On top of that, its revenue increased $97 million quarter on quarter, a strong improvement from the $75.2 million decrease in Q1 2024. This is a sign of acceleration of growth and very nice to see indeed.

Looking ahead, analysts covering the company were expecting sales to grow 18% over the next 12 months before the earnings results announcement.

ProfitabilityWhat makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Palo Alto Networks's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 74.7% in Q2.

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, Palo Alto Networks's gross margin is around the average of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Key Takeaways from Palo Alto Networks's Q2 Results The quarter itself was ok, with revenue beat by a bit and operating income beating by a more convincing amount. However, both full-year billings and full-year revenue guidance were below expectations. EPS guidance for that period was more in line. Furthermore, billings and revenue guidance for next quarter also missed Wall Street's estimates, with EPS below as well. Overall, this was an ok quarter for Palo Alto Networks with the poor guidance dragging shares down. The company is down 13% on the results and currently trades at $318.55 per share.

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