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Palo Alto Networks Inc. shares rallied in the extended session Tuesday after the cybersecurity company reported another beat-and-raise quarter amid what is considered to be a tough time for enterprise software vendors after seeing warnings signs about six months ago.
Palo Alto Networks
PANW,
shares gained more than 5% after hours, following a 1.4% decline in the regular session to close at $166.89, and by the end of the conference call, were up 7.4% in the extended session.
On the call with analysts after the report, Palo Alto Networks Chairman and Chief Executive said he had seen warning signs of softening enterprise spending six months ago and “pivoted hard.”
“We made sure our teams got ahead of it and they have delivered so I want to thank all of them for their contribution,” Arora said. “As I’ve said this is a challenging macro environment out there and the only way we’re going to get through this as Palo Alto Networks is to keep our head down and execute and that’s what we intend to do.”
That foresight appears to have paid off, as in mid-November, Palo Alto Networks was running as one of 2022’s best software stocks after yet another beat-and-raise quarter.
The company reported fiscal second-quarter net income of $84.2 million, or 25 cents a share, versus a loss of $93.5 million, or 32 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.05 a share, compared with 58 cents a share in the year-ago period.
Revenue rose to $1.66 billion from $1.32 billion in the year-ago quarter, while billing came in at $2.02 billion. Analysts surveyed by FactSet had forecast 78 cents a share on revenue of $1.65 billion and billings of $1.97 billion.
“For the last couple of years, we’ve set in motion a plan to expand our operating margin, including driving scale in our businesses, over the last six months we’ve listened to investors who have encouraged us to focus on profitable growth and accelerating incremental leverage in our business and we made good progress in Q2,” Arora told analysts.
“We’re now well-positioned for the second-half of the year,” Arora said, noting that he now sees operating margins of 21.5% to 22% for fiscal 2023, up from a previous forecast of 19.5% to 20%. Dipak Golechha, Palo Alto Networks chief financial officer, told analysts on the call he expects earnings per share growth to continue to outpace revenue growth.
“We believe we can continue to build on this into fiscal year 2024 beyond and putting us three-years ahead of our profitability targets we offered at our last Analyst Day in September 2021,” Arora said.
Palo Alto Networks forecast third-quarter adjusted earnings of 90 cents to 94 cents a share on revenue of $1.7 billion to $1.73 billion and billings of $2.2 billion to $2.25 billion for the third quarter, and $3.97 to $4.03 a share on revenue of $6.85 billion to $6.91 billion and billings of $9.1 billion to $9.2 billion for the year.
Analysts had estimated 79 cents a share on revenue of $1.74 billion and billings of $2.23 billion for the third quarter, and $3.42 a share on revenue of $6.89 billion and billings of $9.06 billion for the year.
Those estimates had been based on Palo Alto’s “broadly” raised outlook for the year three months ago with earnings of $3.37 to $3.44 a share, revenue of $6.85 billion to $6.91 billion and billings of $8.95 billion to $9.1 billion.
Palo Alto Networks shares are up 3.8% over the past 12 months. In comparison, the ETFMG Prime Cyber Security ETF
HACK,
is down 13%, the First Trust Nasdaq Cybersecurity ETF
CIBR,
is off 10.1%, the S&P 500 index
SPX,
down 8.1%, and the tech-heavy Nasdaq Composite Index
COMP,
is off 15.2%.
