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Why Palo Alto Networks, Inc. Shareholders Have Nothing to Worry About

By Steve Symington - Jul 7, 2017 at 3:53PM

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After suffering a hiccup with sales execution earlier this year, the network-security company is back on track.

Shares of Palo Alto Networks (PANW -1.02%) are up nearly 10% so far in 2017 as of this writing, but the rise hasn't been a smooth one. In fact, the network-security specialist has achieved its gains despite falling 25.8% in March alone after sales-execution issues led to a disappointing fiscal second-quarter 2017 report.

But if Palo Alto Networks' latest strong quarter is any indication, shareholders should have nothing to worry about. Let's take a closer look at Palo Alto's current situation, and what investors can expect going forward.

Key floating in a digital hologram.

IMAGE SOURCE: GETTY IMAGES.

Proof in the pudding

First, when Palo Alto Networks offered its underwhelming results in March, CEO Mark McLaughlin explained that go-to-market execution issues were caused by an over-complication of account coverage, as well as too much market segmentation. When those issues became more evident as the year progressed, Palo Alto Networks promptly began to implement a sales reorganization to make appropriate adjustments to its account coverage and investments in sales and marketing.

Thankfully for investors, those efforts began to yield fruit in Palo Alto's subsequent fiscal third-quarter report in late May. Shares of Palo Alto networks popped more than 16% on the day after its latest report, when both revenue and earnings handily beat expectations. Most notably, management pointed out that Palo Alto Networks not only enjoyed strong expansion within its existing customer base, but also added the second-highest number of new customers in company history.

More work to do

During the company's subsequent conference call, McLaughlin stated that the company is "making solid progress" with its sales reorganization so far. He also cautioned, "While we have much more to do and it will take time to fully realize the impact of these changes, early feedback from customers, partners, and our sales team has been good."

More specifically, Palo Alto Networks took a four-step approach to implementing the reorganization. Those steps included designing its changes, communicating them to its teams, performing accounting mapping exercises to ensure adequate coverage, and then -- to borrow McLaughlin's words -- making "sure everybody's in the chairs to cover that."

As it stands, Palo Alto has completed the first three steps of that change and the real work is about to begin. McLaughlin elaborated:

So over the course of the last quarter, we got the design work finished, the communication work finished. We've met all the accounts. And now we need to make sure that the folks are in the chairs to cover the accounts, and that other folks who have just picked up accounts are working as fast and as hard as possible with our help to build those relationships and those accounts, as well. So that's where we are. Right now, we'll be continuing that through during the fourth quarter, for sure, [and] hopefully see a positive impact from this through fiscal 2018.

In short, Palo Alto Networks' sales reorganization is progressing well so far, but we've only just started to see its early benefits to the top and bottom lines.

Make no mistake: This doesn't mean Palo Alto is completely in the clear, so investors will want to keep an eye on its progress in the coming quarters. But given its positive feedback and the potential for this effort to further bolster Palo Alto's results going forward, investors should be excited for what's to come.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.

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