For the fourth straight quarter, Palo Alto Networks (PANW 4.83%) just announced better-than-expected results. After falling 2% during Wednesday's regular session, as of this writing shares of Palo Alto are up modestly in after-hours trading.
The headline numbers are solid. For its fiscal third quarter 2015, Palo Alto Networks increased revenue 55% year over year to a company-record $234.2 million. Based on generally accepted accounting principles, that translated to a net loss of $45.9 million, or $0.56 per diluted share. That might sound bad, but it's a big improvement over the $1.96-per-share net loss Palo Alto saw in the same year-ago quarter. And on an adjusted basis, Palo Alto generated net income of $20.5 million, or $0.23 per diluted share.
Once again, Palo Alto's top and bottom lines each exceeded its previous guidance provided three months ago, which called for revenue growth between 45% and 48%, and adjusted earnings per share of $0.19 to $0.20. Analysts, on average, were anticipating adjusted earnings of $0.20 per share, and revenue of $223.2 million.
Gaining where it really counts
Palo Alto Networks CEO Mark McLaughlin noted that his company continued to gain market share in the quarter -- a crucial achievement as Palo Alto chooses to forsake bottom-line profits in favor of grabbing as much share in this young, burgeoning cybersecurity market as possible.
"Our ongoing success is due to our natively integrated and highly automated enterprise security platform that delivers prevention capabilities at every step in the cyber-attack lifecycle," McLaughlin elaborated. "Our customers are benefiting from the leverage gained by our flexible and extensible platform, the network-effect of insights from across our customer base, and our consistent delivery of innovative technology that extends the value of the platform and enhances our customers' security."
Palo Alto highlighted that, when exposed to real-time drive-by exploits during the NSS Labs 2015 Next-Generation Intrusion Prevention System Test, its platform was granted the highest security efficacy ratings of any other product tested. And for the fourth consecutive year, Palo Alto was recognized in the "Leaders" quadrant of Gartner's Magic Quadrant for Enterprise Network Firewalls.
Consequently, Palo Alto CFO Steffan Tomlinson noted that revenue was driven by both new customers and expansion in existing accounts. When all was said and done, that resulted in broad-based growth across each of Palo Alto's business segments, including products, recurring subscription, and support revenue.
On acquisitions and guidance
But Palo Alto isn't taking its foot off the pedal just yet. Palo Alto also announced that it has acquired CirroSecure, which effectively expands its Enterprise Security platform by providing additional security for software-as-a-service applications like Box, Dropbox, GitHub, Google Drive, and salesforce.com. Palo Alto expects CirroSecure's functionality to be available as a new subscription-based service in the second half of 2015.
Finally, for the current quarter Palo Alto expects revenue of $252 million to $256 million, good for year-over-year growth between 41% and 44%. That should translate to adjusted earnings per diluted share of $0.24 to $0.25. By contrast, Wall Street was modeling fiscal fourth quarter 2015 revenue of $247.7 million, and adjusted earnings at the lower end of Palo Alto's anticipated range.
In the end -- and as per usual -- I can't find anything not to like about Palo Alto's solid results as it inches toward sustained profitability. Assuming Palo Alto can continue to maintain its leadership position and take market share along the way, I see no reason the stock can't also continue to reward patient investors from here.