Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Palo Alto Networks Plunged 11% This Morning

By Rich Smith - Nov 26, 2019 at 11:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earnings looked fine at first glance, but guidance could be a problem.

What happened

It's just two days until Thanksgiving, and investors think they've found their turkey already: Palo Alto Networks ( PANW -2.70% ).

The internet-security specialist reported its fiscal Q1 2020 earnings last night. While the numbers beat estimates -- $1.05 per share in pro forma earnings on $771.9 million in revenue, versus expectations of $1.03 and $767.8, respectively -- investors are nonetheless selling off the stock today. 

Palo Alto Networks shares are down 11.2% as of 11 a.m. EST.

Blackboard showing arrow going up getting erased and going down instead

Image source: Getty Images.

So what

Why such an unhappy reaction to an earnings beat? After all, Palo not only beat expectations in Q1, but it also reported an 18% increase in sales year over year, with 18% growth in billings to match and 26% growth in deferred revenue.

The answer is partly because Palo Alto's numbers aren't quite as great as they sound. The company's $1.05 per share in "earnings," for example, were of the pro forma variety. Actual GAAP results for the quarter showed a $0.62 per-share net loss -- more than 50% worse than what happened a year ago.

Now what

The company's guidance was also partly responsible for the sell-off. Palo Alto noted that in fiscal Q2 2020 (that's the quarter we're in right now), it expects to record only about $843 million in revenue, below Wall Street's $845 million consensus estimate. Pro forma profits could fall even more, with management guesstimating $1.12 per share pro forma -- but analysts want to see $1.30.

Things could get even worse before they get better. For the full year, Palo Alto Networks gives a sales estimate in line with expectations -- $3.46 billion -- but management predicts profits will be only $4.90 to $5 per share, short of the $5.07 consensus. 

No wonder investors are upset.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Palo Alto Networks, Inc. Stock Quote
Palo Alto Networks, Inc.
PANW
$520.86 (-2.70%) $-14.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
624%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.