Palo Alto Networks' (NASDAQ:PANW) terrific quarterly report and guidance prompted a spate of price target upgrades by Wall Street analysts, who believe that the company's outstanding growth is sustainable thanks to its presence in several hot cybersecurity niches.

The cybersecurity specialist's share prices jumped nearly 2% following the release of its fiscal 2022 first-quarter results on Nov. 18, bringing its year-to-date stock gains to about 50%. Let's look closely at Palo Alto's latest quarterly performance and check why this growth stock sports a Street-high price target of $740, which points toward a 39% upside from current levels.

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Palo Alto Networks sizzles once again thanks to terrific demand

Palo Alto Networks has started its new fiscal year with a bang. The company's revenue shot up 32% year over year to $1.25 billion last quarter, which is impressive considering that it finished fiscal 2021 with a 25% increase in the top line. This indicates that Palo Alto may be on its way to clocking stronger growth this fiscal year, which seems possible given the solid demand for its offerings.

For instance, Palo Alto saw a 68% year-over-year spike in the adoption of its Prisma SASE (secure access service edge) platform. The company exited the quarter with 1,805 Prisma SASE customers as compared to just over a thousand in the prior-year period. The terrific growth of this platform bodes well for Palo Alto since SASE is the convergence of several fast-growing cybersecurity niches -- it secures the network, the cloud, and SD-WAN (software-defined wide-area network) through a cloud-based model.

Gartner estimates that 40% of the enterprises using networking services are expected to adopt SASE by 2024 as compared to just 1% at the end of 2018. The good part is that Palo Alto is able to bring new customers into its fold with this solution. More than 25% of the customers using Prisma SASE over the past 12 months are new to Palo Alto, indicating that the company is pulling the right strings to tap this budding opportunity.

Meanwhile, Palo Alto is witnessing robust demand for its cloud security and security automation offerings as well. Its Prisma Cloud customers increased by 30% in the fiscal first quarter as compared to the prior-year period. More importantly, Palo Alto customers have ramped up the usage of its cloud security solutions, as evident from a 70% year-over-year increase in the consumption of Prisma Cloud credits to 2.2 million in Q1.

On the other hand, the number of customers using Palo Alto's Cortex security automation platform increased 80% year over year to 2,859 during the quarter. It is worth noting that Palo Alto is growing at a stronger pace than the cloud security and security automation markets. According to a third-party estimate, the global cloud security market is reportedly growing at an annual pace of nearly 26% a year, while the security automation space is clocking 14.6% growth.

The fact that Palo Alto is outgrowing these markets points toward the company's dominant position in the cybersecurity space, which is also a key reason it seems built for long-term growth.

Solid growth in the cards

Palo Alto exited the first quarter with 1,025 active millionaire customers, which refers to those customer accounts that have spent at least $1 million in bookings over the past four quarters. The number of active millionaire customers shot up 29% year over year in Q1, while there was a 36% year-over-year growth in the value of seven-figure deals during the quarter. In all, Palo Alto struck 160 seven-figure deals in Q1.

The swelling customer count and the stronger transaction activity led to a sharp growth in Palo Alto's deferred revenue and backlog, which is evident from the jump in its remaining performance obligation (RPO) metric. Palo Alto had $6 billion worth of RPO at the end of the first quarter, which easily covers its revenue guidance for the full year. The RPO jumped 37% year over year in Q1, outpacing the company's actual revenue growth.

Once Palo Alto performs the contractual obligations and delivers its services to customers, the RPO will be recorded as revenue on the income statement.

The above-mentioned developments explain why Palo Alto has increased its revenue guidance for the year. The company now expects 26% to 27% top-line growth in fiscal 2022 to a range of $5.35 billion to $5.40 billion, up from its prior forecast of 24% to 25% growth. However, don't be surprised to see Palo Alto raise its expectations as the year progresses. The impressive demand for its offerings is leading to a jump in the customer count and spending, which could help this cybersecurity stock reach the impressive upside it is expected to deliver.

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.