Palo Alto Networks Extends Its Industry Leadership in Another Strong Quarter

Palo Alto Networks (PANW 1.37%) announced fiscal second-quarter 2019 results on Tuesday after the market closed, exceeding guidance yet again with sustained growth and continued momentum for its industry-leading cybersecurity platform. The company also unveiled an ambitious new stock-repurchase authorization and detailed its latest large acquisition.

With shares up more than 9% in after-hours trading as of this writing, let's take a closer look at what Palo Alto Networks had to say. 

IMAGE SOURCE: GETTY IMAGES.

Palo Alto Networks results: The raw numbers

DATA SOURCE: PALO ALTO NETWORKS. *FOR THE QUARTER ENDED Jan. 31, 2019. 

What happened with Palo Alto Networks this quarter?

• Adjusted for items like stock-based compensation and acquisition costs, Palo Alto Networks' (non-GAAP) net income was $147 million, or $1.51 per share, up from $98.7 million, or $1.05 per share in the same year-ago period.
• Both the top and bottom lines arrived above guidance provided in late November for revenue in the range of $675 million to $685 million, and adjusted earnings per share of $1.20 to $1.22.
• Product revenue grew 32.6% year over year to $271.6 million.
• Subscription and support revenue increased 29% to $439.6 million.
• Billings rose 26.6% to $852.5 million, and deferred revenue increased 32% to $2.5 billion.
• Subsequent to the end of the quarter, Palo Alto Networks announced it has agreed to acquire security orchestration, automation, and response (SOAR) leader Demisto for $560 million in cash and stock. Pending regulatory approval, the deal is expected to close before the end of Palo Alto Networks' third quarter of fiscal 2019.
• In a separate news release today, Palo Alto Networks announced Cortex, the first open and integrated AI-based continuous security platform, as well as Traps 6.0 Endpoint Protection and Cortex XDR.
• On Feb. 22, 2019, the company's board approved a new $1 billion share repurchase authorization good through Dec. 31, 2020.

What management had to say

Palo Alto Networks CEO Nikesh Arora stated:

We remain focused on delivering to our customers the best security in the market. Our recently introduced products and services, including Cortex XDR, Traps 6.0, PAN-OS 9.0, the DNS Security Service subscription, and our fastest ever Next-Generation Firewall, coupled with the proposed acquisition of Demisto, further enhance and expand our capabilities, making security simpler and more effective through the use of artificial intelligence, analytics, automation and orchestration.

Looking forward

For the current third quarter of fiscal 2019, Palo Alto Networks anticipates revenue of $697 million to $707 million, good for 24% growth at the midpoint, with adjusted earnings per share of $1.23 to $1.25. By comparison -- and while we don't usually lend much credence to Wall Street's models -- most analysts were looking for roughly the same earnings on revenue near the lower end of Palo Alto Networks' expected range.

Still, in these early stages of its long-term story, Palo Alto Networks' primary goal is to take market share and drive top-line growth even as it means forsaking GAAP profitability in the meantime. And the company is certainly succeeding to that end through both strategic acquisitions and by organically engineering cutting-edge cybersecurity solutions. As such, Palo Alto Networks stock is understandably rallying in response.

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