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Palo Alto Networks Guides Low on Acquisition Costs

By Steve Symington - May 30, 2019 at 3:42PM

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The cybersecurity leader is falling despite exceeding expectations yet again.

Palo Alto Networks (PANW 9.70%) announced better-than-expected fiscal third-quarter 2019 results on Wednesday after the market closed; it showcased the promise of a pair of new acquisitions, to help drive the continued adoption of its fast-expanding portfolio of cybersecurity offerings. But thanks in part to those acquisitions, the company's forward earnings guidance left the market wanting more.

With shares down around 6% on Thursday as of this writing, let's dig deeper into Palo Alto Networks' latest quarter.

A metal padlock on top of a circuit board

IMAGE SOURCE: GETTY IMAGES.

Palo Alto Networks results: The raw numbers

Metric

Fiscal Q3 2019*

Fiscal Q3 2018

Year-Over-Year Change

Revenue

$726.6 million

$567.7 million

28%

GAAP net income (loss)

($20.2 million)

($40.4 million)

N/A

GAAP earnings (loss) per share

($0.21)

($0.44)

N/A

DATA SOURCE: PALO ALTO NETWORKS. *FOR THE QUARTER ENDED April 30, 2019. GAAP = generally accepted accounting principles.

What happened with Palo Alto Networks this quarter?

  • On an adjusted (non-GAAP) basis, Palo Alto Networks generated net income of $130.1 million, or $1.31 per share, up from $1.04 per share in the same year-ago period.
  • These results compared favorably to guidance provided in late February for adjusted earnings per share of $1.23 to $1.25, on revenue ranging from $697 million to $707 million.
  • Product revenue climbed 27.6% year over year to $278.4 million, while subscription and support revenue increased 28.2% to $448.2 million.
  • Deferred revenue grew 27% to $2.6 billion.
  • On March 28, Palo Alto Networks closed on its previously announced $560 million cash-and-stock acquisition of security orchestration, automation, and response (SOAR) company Demisto.
  • In a separate press release yesterday, Palo Alto Networks announced agreements to to acquire container-security leader Twistlock, and serverless-security specialist PureSec.

What management had to say

Palo Alto Networks CEO Nikesh Arora stated:

Our team continues to execute on our plan and deliver robust results. The excitement around our new products is incredible and will only grow once customers have a chance to experience it for themselves. Both Twistlock and PureSec will be important additions to helping protect our customers' journey to the cloud. Combining their capabilities with Prisma, our leading cloud security suite, is a huge win for all of our customers.

Looking forward

For the current fourth quarter of fiscal 2019, Palo Alto Network is targeting revenue of $795 million to $805 million, representing year-over-year growth of between 21% and 22%, with adjusted net income per share of $1.41 to $1.42. Note that the latter range includes a $0.02-per-share negative impact from tariffs, and $0.12 per share in costs related to the aforementioned acquisitions. For perspective -- and though we don't usually pay close attention to Wall Street's demands -- that expected revenue range is well above the roughly $794 million most analysts were modeling. And excluding those unusual expenses, Palo Alto Networks' earnings guidance would have been roughly in line with consensus estimates.

Nonetheless, with shares already up around 20% year to date leading into this report, it seems the market is using this mixed guidance as a chance to drive down Palo Alto Networks today. But I still think patient long-term investors should be more than pleased with the company's continued momentum.

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Stocks Mentioned

Palo Alto Networks, Inc. Stock Quote
Palo Alto Networks, Inc.
PANW
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