Yahoo Finance Palo Alto (PANW) Down 8.2% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Palo Alto Networks (PANW). Shares have lost about 8.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Palo Alto due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Palo Alto Q4 Earnings and Revenues Surpass Estimates
Palo Alto Networks reported better-than-expected results for the fourth quarter of fiscal 2024. The company reported non-GAAP earnings of $1.51 per share for the fiscal fourth quarter, which beat the Zacks Consensus Estimate of $1.41. The bottom line improved 4.9% from the year-ago quarter’s non-GAAP earnings of $1.44 per share and came above the company’s earlier guidance of $1.40-$1.42.
Palo Alto’s fiscal fourth-quarter revenues of $2.19 billion beat the Zacks Consensus Estimate of $2.16 billion and rose 12.3% from the year-ago reported figure. Fourth-quarter revenues also came above management’s previously provided guidance of $2.15-$2.17 billion.
The top line was primarily driven by growth across the Products, Services and Subscription segments. Additionally, the increased adoption of Palo Alto’s Next-Generation Security platforms, driven by the hybrid work culture and the heightened need for stronger security, also aided fiscal fourth-quarter results.
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, building sales capability, platform integration and continued investments in the go-to-market strategy.
Billings increased 11% to $3.5 billion in the fiscal fourth quarter and outpaced the company’s projection of $3.43-$3.48 billion.
Fiscal Fourth-Quarter Performance
Product revenues increased 5% year over year to $481 million and contributed to 22% of the total revenues. The company’s Subscription and Support revenues, which accounted for 78% of the total revenues, improved 18.2% to $1.71 billion.
Deferred revenues at the end of the fiscal fourth quarter were $5.54 billion. Palo Alto’s remaining performance obligation climbed to $12.7 billion, reflecting a year-over-year increase of 20%.
Palo Alto’s next-generation security annualized recurring revenues were $4.22 billion in the reported quarter, which grew 43% year over year and 11.3% from the previous quarter.
Non-GAAP gross profits increased 11.5% to $1.68 billion. The non-GAAP gross margin contracted 50 basis points (bps) to 76.8%.
The non-GAAP operating income rose 6% to $588 million. Meanwhile, the non-GAAP operating margin contracted 150 bps to 26.9% compared with the year-ago quarter.
Balance Sheet & Cash Flow
Palo Alto exited the fiscal fourth quarter with cash, cash equivalents and short-term investments of $2.56 billion, down from $2.89 billion at the end of the previous quarter. As of Jul 31, 2024, the company had long-term operating lease liabilities of $380.5 million.
PANW generated an operating cash flow of $512.7 million and non-GAAP adjusted free cash flow of $485.3 million in the fiscal fourth quarter. The non-GAAP adjusted free cash flow margin for the quarter came in at approximately 22.2%. In fiscal 2024, the company generated an operating cash flow of $3.26 billion and non-GAAP adjusted free cash flow of $3.12 billion.
FY25 and First-Quarter Guidance
For fiscal 2025, Palo Alto expects revenues between $9.10 billion and $9.15 billion. Remaining Performance Obligation is projected in the range of $15.2-$15.3 billion. Next-Gen Security ARR is estimated in the band of $5.42-$5.47 billion.
PANW’s fiscal 2025 non-GAAP operating margin is projected in the range of 27.5-28%. Its adjusted free cash flow margin is estimated in the range of 37-38%. The company expects net income per share in the range of $6.18-$6.31.
For the first quarter of fiscal 2025, PANW projects revenues between $2.10 billion and $2.13 billion, which suggests year-over-year growth of 12-13%. Remaining Performance Obligations are anticipated between $12.4 billion and $12.5 billion. Next-Gen Security ARR is expected in the band of $4.33-$4.38 billion.
Non-GAAP earnings are projected in the range of $1.47-$1.49 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 9.55% due to these changes.
VGM Scores
At this time, Palo Alto has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Palo Alto has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Palo Alto is part of the Zacks Internet - Software industry. Over the past month, HubSpot (HUBS), a stock from the same industry, has gained 1%. The company reported its results for the quarter ended June 2024 more than a month ago.
HubSpot reported revenues of $637.23 million in the last reported quarter, representing a year-over-year change of +20.4%. EPS of $1.94 for the same period compares with $1.34 a year ago.
For the current quarter, HubSpot is expected to post earnings of $1.89 per share, indicating a change of +18.9% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
HubSpot has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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