Palo Alto Networks reported fiscal second-quarter earnings and revenue that topped Wall Street's targets amid its push into cloud-based cybersecurity services. But guidance for Palo Alto stock underwhelmed as Wall Street analysts mulled a few financial metrics.
The Palo Alto earnings report came in after the market close on Thursday. On the stock market today, Palo Alto stock fell 5.7% to 190.35 in early trading.
Palo Alto Stock: Key Growth Metrics Eyed
"The stock is trading lower likely reflecting the modest increase in guidance and lingering concerns about net new annual recurring revenue growth as next-generation security ARR decelerated," said William Blair analyst Jonathan Ho in a report. "While Palo Alto reiterated its confidence in converting large scale customers to platforms, we believe investors are concerned that incremental gains will be harder to achieve. We are optimistic that drivers such as artificial intelligence can expand the market opportunity significantly to help Palo Alto reach its targets."
In the quarter ended Jan. 31, Palo Alto earnings rose 11% to 81 cents per share on an adjusted basis. Further, revenue for Palo Alto stock climbed 14% to $2.3 billion, including the QRadar acquisition.
Analysts had expected earnings of 78 cents a share on sales of $2.24 billion.
Annual recurring revenue from cloud computing products, a key metric, rose 37% to $4.8 billion, topping estimates of $4.73 billion.
"In the quarter, net new, next generation security ARR was $260 million, which was down from $300 million last quarter," BMO Capital Markets analyst Keith Bachman in a report. "If we would exclude PANW's $74 million of net new, next generation ARR contribution from QRadar this quarter and last quarter, this would mark the second sequential decline in the metric. Similar to last quarter, management stated that this weakness was due to difficult compares as Palo Alto laps the conversion of firewall subscriptions to advanced subscriptions."
Free Cash Flow Light
In fiscal Q2, Palo Alto said remaining performance obligations, or RPO, rose 21% to $13 billion, in line with estimates of $12.96 billion.
Meanwhile, Palo Alto reported free cash flow of $509 million, below consensus of $685 million. "While cash flow was disappointing, PANW maintained fiscal 2025 FCF margin guidance of 37% to 38% and endorsed 37%-plus for the next three years," said Jefferies analyst Joseph Gallo in a report.
For the current quarter ending in April, the cybersecurity firm forecast revenue in a range of $2.26 billion to $2.29 billion versus estimates of $2.27 billion.
Also, Palo Alto said it expects subscription-based ARR to grow about 33% to $5.055 billion vs. estimates of $5.05 billion.
Network Firewall Market
Meanwhile, sales for firewall network appliances have slowed. Firewall appliances protect computer networks by blocking online intrusions and monitoring Web-based apps.
However, Palo Alto has built a broad cloud-based security platform through acquisitions. Cloud software revenue is becoming a larger part of overall sales.
Heading into the Palo Alto earnings report, PANW stock had climbed 8% in 2025.
Palo Alto stock holds an IBD Composite Rating of 94 out of 99, according to IBD Stock Checkup. Meanwhile, Palo Alto Networks is among AI stocks to watch.
Meanwhile, PANW stock had an Accumulation/Distribution Rating of C, according to IBD MarketSmith analysis. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
