Palo Alto Networks reported fiscal third-quarter earnings and revenue that modestly beat Wall Street targets while billings again missed amid slowing growth in its core network firewall market. Palo Alto stock fell on Tuesday, dragging down other cybersecurity stocks as well.
Further, Palo Alto reported fiscal Q3 financial results after the market close on Monday. On the stock market today, Palo Alto stock fell 3.7% to close at 311.66.
Shares in Cloudflare, Zscaler and Fortinet also dipped. CrowdStrike Holding initially fell but closed up a fraction.
One view is that Palo Alto could turn more aggressive in offering price discounts to customers that buy product packages.
"We see increased discounting, bundling, free deployment offerings, and continued weakness in the firewall market driving some headwind," said Bank of America analyst Tal Liani in a report.
"On the other hand, we believe the underlying trends remain solid. While payment terms on billings aren't favorable, management continues to push down the channels to get the contracts and is leveraging its financing arm in exchange for long term deals and greater deal sizes."
In the quarter ended April 30, Palo Alto earnings rose 20% to $1.32 a share on an adjusted basis. Further, revenue climbed 15% to $2 billion, including acquisitions.
Analysts expected earnings of $1.25 a share on sales of $1.97 billion.
Also, billings rose 3.4% to $2.334 billion versus estimates for 3.7% growth. Billings, a sales growth metric, have been an issue for Palo Alto stock.
"While we believe investors were expecting a billings beat and raise, our take is that Palo Alto is tracking to our fiscal 2025 estimates, though we would have liked to see some billing upside," said BMO Capital Markets analyst Keith Bachman in a report.
In fiscal 2023, Palo Alto's billings rose 23% to $9.2 billion.
Palo Alto Stock: Billings Guidance
For the current quarter ending in July, the cybersecurity firm predicted profit of $1.41 per share, meeting expectations. Further, Palo Alto forecast revenue of $2.16 billion at the midpoint of guidance, in line with estimates of $2.16 billion.
For fiscal Q4, the company predicted billings in a range of $3.43 billion to $3.48 billion, with growth of 9% to 10%, versus estimates of $3.45 billion.
In addition, 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.
Long range, Palo Alto aims to sell a broad range of cloud security products.
"The company indicated it experienced clear traction with its platform messaging, signing 65 new platformization customers," said William Blair analyst Jonathan Ho in a report. "(Palo Alto now has) a total of 900 such customers. The company is targeting 2,500 to 3,500 of these platformizations to reach $15 billion in next-generation annual recurring revenue by fiscal 2030."
Heading into the Palo Alto earnings report, the cybersecurity stock had retreated 11% in 2023.
Palo Alto stock holds an outstanding Composite Rating of 97, according to IBD Stock Checkup.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
