What happened
Shares of Palo Alto Networks (PANW 0.91%) fell 21.4% in February 2020, according to data from S&P Global Market Intelligence. The network security specialist's stock was tracking right alongside the broader market all month long until a mixed second-quarter earnings report spoiled the party.
So what
Palo Alto's second-quarter earnings fell 21% year over year to land at $1.19 per share. Revenue rose by 15% to $817 million. Your average analyst had been looking for earnings of roughly $1.12 per share on sales in the neighborhood of $843 million. Looking ahead, management set up third-quarter guidance targets well below the Street view and reduced its full-year projections. The stock crashed 16% lower that day and continued to slide amid the marketwide coronavirus scare to close out February's market action.
Image source: Getty Images.
Now what
Perhaps the most frightening part of Palo Alto's weak guidance was the admission that even these lower projections didn't account for any coronavirus-related damage to the company's supply chains.
"We're all watching the coronavirus," CEO Nikesh Arora said on the earnings call. "I think whatever impact happens, because that will happen across the industry, will not be specific to any one company but we might have less exposure compared to others."
Palo Alto Networks is still a high-quality company, but this seemingly cavalier attitude to the COVID-19 coronavirus impact could come back to bite Arora over the next few months. The strong market reaction makes a lot of sense here, because growth stocks like Palo Alto are often measured by their top-line growth potential, and that view just grew a bit cloudy.
