Shares in Palo Alto Networks jumped Wednesday after the cybersecurity firm's fiscal third-quarter earnings and revenue topped Wall Street targets. Large customer growth for cloud-based services was a bright spot for PANW stock in the April quarter.
PANW stock surged 7.7% to close at 204.31 on the stock market today. Palo Alto released results after the market close on Tuesday.
Palo Alto earnings for the period that ended April 30 rose 83% to $1.10 on an adjusted basis. Further, revenue for PANW stock rose 24% to $1.72 billion, including acquisitions.
Analysts expected earnings of 93 cents a share on sales of $1.715 billion.
Billings, a sales growth metric, rose 26% to $2.3 billion, edging by estimates of $2.228 billion.
Large Customer Growth Bright Spot
"The company's strategy continues to drive significant large-deal activity, including deals of more than $10 million growing 136% over the prior-year quarter, deals of more than $5 million growing 62%, and deals of more than $1 million growing 29%," William Blair analyst Jonathan Ho said in a note to clients. He added: "There continues to be a tailwind of customers consolidating purchases to Palo Alto's suite of solutions."
With roots in the "firewall" network security market, Palo Alto has built a broad cloud-based security platform. Firewall appliances protect computer networks by blocking online intrusions and monitoring web-based apps. Acquisitions have been a big part of Palo Alto's strategy.
Also in the April quarter, annual recurring revenue from cloud platform products rose 60% to $2.57 billion. That topped PANW stock analyst estimates of $2.51 billion.
PANW Stock: Earnings Outlook Above Views
For the current quarter ending in July, Palo Alto predicted earnings of $1.28 per share on revenue of $1.95 billion at the midpoint of its outlook. Meanwhile, analysts had estimated profit of $1.20 a share on revenue of $1.95 billion.
"Reflecting elevated focus on profitability, Palo Alto improved 2023 guidance, boosting free cash flow margin and operating margin," TD Cowen analyst Shaul Eyal said in his note to clients. "Despite a more challenging macro (environment), Palo Alto is sustaining momentum and winning large deals."
Further, Palo Alto stock had advanced 36% for 2023 through Tuesday's market close. Also, it is trading in a five-week flat base with a 203.54 buy point.
Palo Alto management addressed worries over the economy on its earnings call with analysts.
Impact Of Artificial Intelligence
"Management flagged that the environment continues to become more challenging, noting that cautious spending and deal scrutiny continues to be more widespread among customers," Bank of America analyst Tal Liani said in a note. "However, the company continues to outpace market growth. Management raised fiscal 2023 product revenue growth guidance from 10% prior, to 15% to 16%."
Further, Palo Alto aims to put more artificial intelligence tools into its cloud platform. It's among AI stocks to watch.
"Management acknowledged the significant impact generative AI will have on cybersecurity," Deutsche Bank analyst Brad Zelnick said in a note. "We believe PANW is in a strong position to possibly capitalize on the trend with platform breadth, data, and distribution."
PANW stock holds a Relative Strength Rating of 88 out of a best-possible 99, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
