Palo Alto Earnings: We See Early Signs of Success as Palo Alto Expands Its Platform Reach

We raise our fair value estimate for wide-moat Palo Alto Networks to $366 per share from $300. While strong quarterly results, with better-than-expected profitability, drove some of the fair value increase, the majority of our fair value uptick is due to our increased confidence in Palo Alto’s platformization strategy, which is showing early signs of success. We disagree with investors’ overemphasis on the firm’s billings, which remain affected by its decision to offer bundling discounts to existing customers. Instead, we’d point investors to longer-term secular tailwinds, which, in our opinion, will help Palo Alto regain its status as the first $100 billion pure-play cybersecurity business.