Palo Alto Networks' stock falls after earnings as forecast fails to impress

By Emily Bary

Company defends 'platformization' move as shares head for another post-earnings slump

Palo Alto Networks Inc. shares fell in Monday's after-hours action as the cybersecurity company failed to sport much upside with its latest quarterly forecast, which bracketed the consensus view.

The company's fiscal fourth-quarter forecast calls for revenue of $2.15 billion to $2.17 billion as well as $3.43 billion to $3.48 billion in billings, which account for deferred revenue. Analysts were looking for $2.16 billion and $3.45 billion, respectively.

This report follows a disappointing one three months ago, when Palo Alto Networks (PANW) slashed its full-year outlook. The company attributed the move at the time to its emphasis on "platformization," with analysts noting that the company was looking to give away some products for free initially in hopes customers would eventually sign contracts for them and move to adopt a broader suite of offerings.

The stock fell 8.6% in after-hours trading Monday. It lost 28% in the first session after its last earnings report.

The company's latest full-year outlook, out Monday, wasn't much better than the guidance Palo Alto gave back in February. Palo Alto Networks' latest full-year forecast is for $10.13 billion to $10.18 billion in bookings as well as $7.99 billion to $8.01 billion in revenue. Its prior outlook, issued in February, called for $10.1 billion to $10.2 billion in total billings and $7.95 billion to $8.00 billion in total revenue.

Yet executives on the earnings call said the "platformization" move was already paying off.

"As many of you have undoubtedly seen, our rollout of platformization has stoked a long-standing debate within the cybersecurity industry about whether customers desire a platform or best-of-breed cybersecurity," Chief Executive Nikesh Arora said, according to a transcript provided by AlphaSense. "From the Palo Alto Networks' perspective, we've proven it is possible to deliver best of platform."

Arora said that "despite the concerns around our platformization approach after our last quarter, the customer feedback has been nothing but encouraging." Palo Alto Networks saw about 65 incremental "platformization" sales in its fiscal third quarter, up 40% on a sequential basis.

"With our incremental momentum in platformization, we see a runway to delivering approximately 2,500-plus platformization sales, up from the current 900, while continuing to land our multiple platforms in our customer base and adding new customers," he said.

The company generated fiscal third-quarter net income of $278.8 million, or 79 cents a share, compared with net income of $107.8 million, or 31 cents a share, in the year-earlier quarter. On an adjusted basis, Palo Alto Networks earned $1.32 a share, whereas the FactSet consensus was for $1.25 a share.

Revenue rose to $1.98 billion from $1.72 billion a year prior, while analysts were modeling $1.97 billion.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

05-20-24 2051ET

Copyright (c) 2024 Dow Jones & Company, Inc.