Palo Alto Networks earnings could hold early clues about the CrowdStrike fallout

By Emily Bary

Peloton, Target among other notable companies that will post results in the week ahead

Is the CrowdStrike Holdings Inc. saga having ripple effects across the cybersecurity landscape? One big upcoming earnings report could hold some clues.

Investors have to wait until the end of the month to hear from CrowdStrike (CRWD), but on Monday they'll get results from Palo Alto Networks Inc. (PANW), a major rival. After a CrowdStrike software update sparked a global tech outage toward the end of the July quarter, it's worth watching to see whether Palo Alto Networks saw its own customers show short-term caution - and whether CrowdStrike's brand damage could help Palo Alto Networks win business down the road.

Guggenheim analyst John DiFucci wrote that he expects to see "modest upside" to Palo Alto Networks' latest quarterly revenue and billings figures, "though one relevant channel expert indicated soft sales at the end of the quarter following the CrowdStrike incident."

Piper Sandler's Rob Owens also said that the CrowdStrike debacle "essentially acted as an 'all hands on deck' scenario for IT/security teams, which likely resulted in some deals getting pushed out of the quarter for everyone."

Beyond looking for CrowdStrike impacts, analysts will be watching for updates on Palo Alto Networks' "platformization" strategy that has taken hold recently, to some investor consternation. As Palo Alto Networks seeks to drive greater adoption of its broader platform of offerings, analysts say it's been giving some product away for free temporarily in hopes of giving a lasting lift to the business down the road.

Opinion: Palo Alto Networks continues to play the long game, much to Wall Street's chagrin

Citi's Fatima Boolani said that she thinks the company's "concerted efforts/commitment on this front will likely continue pressuring billings, where we are less certain if there will be a formal guide moving forward, and to the extent there is one, it very likely could land below [the] Street's 12% growth" expectations.

Additionally, one topic of investor interest lately is whether customers will balk at moving more of their spend to one vendor after the CrowdStrike saga highlighted the potential benefits of diversification.

Opinion: Why CrowdStrike is likely shielded from billions in customer losses caused by its outage

Elsewhere in the software sector, the week ahead will feature results from Zoom Video Communications Inc. (ZM) and Snowflake Inc. (SNOW) on Wednesday afternoon, as well as Workday Inc. (WDAY) on Thursday afternoon.

The week in earnings

There are 14 members of the S&P 500 SPX due to report in the week to come, as the pace of prints continues to cool down. There are no Dow Jones Industrial Average DJIA constituents on the docket.

Investors should get a few more glimpses into the state of the consumer, as Lowe's Cos. Inc. (LOW) will follow last week's report from Home Depot Inc. (HD) that showed pressure on home-improvement spending. At the same time, Home Depot's management offered hopes that trends would improve if interest rates come down.

And while Walmart Inc.'s (WMT) results last week illustrated spending resilience, it remains to be seen whether Target Corp.'s (TGT) earnings will meet the same positive reception. Walmart has greater exposure than Target to grocery spending, which means that more of Target's business mix comes from discretionary spending.

TJX Cos. Inc. (TJX) and Ross Stores Inc. (ROST) are among other retailers on the schedule.

The call to put on your calendar

Peloton Interactive Inc.: The maker of connected exercise equipment has had a rough time since its pandemic-era heyday. Shares are down 98% from their January 2021 closing high, and revenue is expected to have declined again in the June quarter. Peloton (PTON) is taking dramatic action as it looks to get back on track, and the company's Thursday morning earnings call should indicate how things are going with a cost-cutting program that was announced three months back. Investors will also be listening for updates on the company's chief-executive search, as it shook up its top ranks earlier this year and currently has two interim co-CEOs holding down the fort.

The number to watch

Target's same-store sales: Target is expected to show a return to growth on same-store sales when the company posts its quarterly results Wednesday morning. Analysts tracked by FactSet model 1.2% growth from a year earlier, which would snap a streak of four consecutive declines. That performance would be less robust, however, than what was seen at Walmart, which sported 3.3% growth on the metric. There are "more uncertainties facing discretionary retailers than 90 days ago," UBS analyst Michael Lasser wrote recently. Still, he expects that Target will show simultaneous growth in comparable sales and its margin of earnings before interest, taxes, depreciation and amortization, or Ebitda, "in a reporting season where the majority of discretionary retailers will likely see declines in these metrics."

-Emily Bary

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08-18-24 2043ET

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