Palo Alto Networks reported fiscal first-quarter earnings that topped Wall Street's targets while revenue met views amid its "platformization" push. Palo Alto stock fell amid concern over billings, a sales growth metric the company has deemphasized.
On the stock market today, PANW stock fell 1.5% to 386.80 in early trading. Palo Alto earnings came in after the market close on Wednesday.
Also, the company announced a 2-for-1 stock split.
In the quarter ended Oct. 30, Palo Alto earnings rose 13% to $1.56 per share on an adjusted basis. Further, revenue for Palo Alto stock climbed 14% to $2.13 billion, including the QRadar acquisition.
Analysts had expected earnings of $1.48 a share on sales of $2.12 billion for PANW stock.
Debate Over 'Platformization'
Annual recurring revenue from cloud computing products rose 40% to $4.5 billion, topping estimates of $4.37 billion. Chief Executive Nikesh Arora has leaned into a cloud platform strategy to drive next generation ARR growth.
Some analysts have been concerned about price discounting tied to the strategy.
Arora has told analysts that offering customers price discounts if they bought multiple products would result in bigger, long-term deals and help drive next-generation ARR to a $15 billion goal.
"While less relevant given the platformization shift, we note billings of $1.752 billion was well below consensus at $2,192 billion, up 13% year-over-year," said RBC Capital analyst Matthew Hedberg in a report. "We note that PANW stopped guiding to billings last quarter given the noise the platformization strategy has introduced to the metric."
Palo Alto Stock: New Financial Metric
Palo Alto has switched to providing an outlook for remaining performance obligations instead. RPO is the total value of contracted revenue that a company has not yet recognized as revenue on its financial statements.
In fiscal Q1, Palo Alto RPO rose 20% to $12.6 billion vs. estimates of $12.48 billion.
For the current quarter ending in January, the cybersecurity firm predicted RPO of $12.95 billion, just above estimates of $12.92 billion.
Further, Palo Alto forecast revenue in a range of $2.22 billion to $2.25 billion, in-line with estimates of $2.23 billion.
Wall Street Analysts Mull Fiscal Q1 Results
At Susquehanna, analyst Shyam Patil said in a report: "PANW continues to execute on its platform strategy and added over 70 net new platformizations in fiscal Q1 compared to 90 in fiscal Q4. Roughly one-third of these new platformizations came from QRadar. PANW now has roughly 1,100 total platformizations across its customer base."
William Blair analyst Jonathan Ho in a report said fiscal Q1 results were mixed.
"While billings is no longer a metric the company uses to manage the business, the sharp contrast between RPO and billings is likely to stoke some investor concern," he said. "Net new ARR of $300 million (aided by the QRadar acquisition) and RPO growth of 21% to $12.6 billion came in above the consensus. The company cited strength in its platformization offering, which resulted in 1,100 cumulative platformizations (including QRadar) and remains on track to achieve 2,500 to 3,500 by 2030."
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 30% in 2024.
Palo Alto stock holds an IBD Composite Rating of 89 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-plus, 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.
