Palo Alto Networks has announced that it expects its earnings to surpass previous estimates, driven by increased demand for its cybersecurity products. The surge in online threats has heightened the need for robust cybersecurity solutions, benefiting companies like Palo Alto. Beginning this quarter, Palo Alto will highlight next-generation security annual recurring revenue as the primary financial metric for its revenue projections, both quarterly and annually, according to CFO Dipak Golechha.
This shift underscores the company’s strategic focus on evolving its security offerings to address modern cybersecurity challenges. The rise in online threats has created a strong market for Palo Alto’s cybersecurity products, leading to optimistic financial forecasts. The company is well-positioned to capitalize on the growing need for advanced security solutions in a digitally connected world.
After two challenging quarters, Palo Alto Networks on Monday evening delivered the type of earnings report expected from one of the leading cybersecurity companies in the world. The stock rose another 2% in after-hours trading. During Palo Alto’s fiscal 2024 fourth quarter, revenue increased 12% year over year to $2.19 billion, beating the consensus estimate of $2.16 billion.
Adjusted earnings per share advanced 5% to $1.51 in the three months ending July 31, ahead of EPS estimates of $1.41. Total billings accelerated to an 11% year-over-year growth rate, reaching $3.5 billion, outpacing the $3.46 billion estimate. In the previous quarter, billings increased by 3%, causing some concern on Wall Street despite management reiterating that their remaining performance obligation (RPO) metric was a better gauge of underlying trends.
Palo Alto’s RPO in fiscal Q4 increased 20% year-over-year to $12.7 billion, although this was a slight decline from the 23% growth rate seen in the prior quarter. With the U.S. presidential election approaching and potential cyberattacks rising, management’s conservative outlook may prove prudent. The quarterly results were strong, and signs point to continued growth.
While product sales performance was slightly weaker, the strength in the company’s subscription and support offerings offset this. Companywide gross and operating income exceeded expectations, compounding the strength in earnings and revenue. Additionally, free cash flow beat estimates, allowing the board to authorize a $500 million increase to the corporate buyback plan, bringing the total remaining repurchase plan to $1 billion.
The RPO guide was slightly lower but compensated by management’s better-than-expected sales, earnings, and recurring revenue outlook for the current quarter (fiscal 2025 Q1) and full-year fiscal 2025. To deemphasize billing results, which represent the total invoiced amount in a given period, management has stopped providing billing guidance, focusing instead on RPO and annual recurring revenue (ARR). The high cost of money has led to increased negotiations on terms and financing options.
While RPO may not be as concrete as billings since cash hasn’t been collected, CFO Dipak Golechha assured on the post-earnings conference call that contracts included in RPO are non-cancellable and non-refundable. Citing increased pressure on companies to prevent cyberattacks due to new government rules, CEO Nikesh Arora highlighted how breaches must often be disclosed before their full extent. Fast response times are critical, as Palo Alto’s research found that customer data could be exfiltrated within a day of compromise in nearly half of the cases.
Palo Alto’s earnings surpass expectations
The financial toll of breaches is growing, with damages from individual breaches having topped $1 billion. This exposure opens opportunities for Palo Alto’s Unit 42 group, threat research, and security consulting team.
Considering Palo Alto’s unique positioning in the cybersecurity market with its best-in-class tools and broad product portfolio, the company is poised to continue its success. Competitors include CrowdStrike, Fortinet, and Cisco Systems. Recent disruptions caused by a defective CrowdStrike update affecting global IT highlight the importance of reliable cybersecurity solutions.
Arora emphasized the advantage of Palo Alto’s different content update deployment approach compared to CrowdStrike, which helped them secure deals during CrowdStrike’s recovery from the issue. With the growing adoption of artificial intelligence, used both by criminals for cyberattacks and by companies like Palo Alto to thwart them, the long-term outlook for Palo Alto Networks remains bullish. In conclusion, Palo Alto Networks has demonstrated resilience and strength, positioning itself firmly for future growth amidst an ever-evolving cybersecurity landscape.
Palo Alto Networks’ stock saw an uptick on Tuesday following the release of its fiscal fourth-quarter results and fiscal year 2025 outlook, which received favorable reactions from analysts. KeyBanc Capital Markets maintained its Overweight rating on the stock and adjusted the price target upward to $400 from $380. Analysts led by Eric Heath commented that their Overweight rating is based on a solid, albeit relatively in-line, fiscal fourth quarter and fiscal year 2025, which met their expectations.
The fiscal fourth quarter beat projections by 1% in revenue, exceeded billings by 2%, and met the remaining performance obligation (RPO) target, while margins were also ahead of predictions. The company’s management has transitioned guidance to an RPO basis. It expects 19% to 20% growth for both the fiscal first quarter of 2025 and the entire fiscal year 2025, which is slightly below consensus but aligns with investor expectations. Additionally, the company provided a one-time billing guidance of 12% for fiscal year 2025, surpassing the consensus estimate of 11%.
In reference to the CrowdStrike outage, Palo Alto’s management noted that it did not impact bookings for the fiscal fourth quarter but is expected to boost momentum in Cortex XDR going forward. Eric Heath and his team expressed confidence in Palo Alto’s leadership in several strategic markets and its position as a consolidator of security spending. RBC Capital Markets also retained its Outperform rating on Palo Alto, raising the price target to $410 from $390.
Analysts led by Matthew Hedberg remarked that the quarter represented a solid end to the fiscal year, with momentum building into fiscal year 2025. They were particularly optimistic about the acceleration of trends in the latter half of fiscal year 2024, the progress in platformization, and the transition of guidance to an RPO basis from billings, which they believe better aligns with underlying trends. JMP Securities maintained its Market Outperform rating and $380 price target on Palo Alto.
Analyst Trevor Walsh highlighted “respectable F4Q24 results” with non-GAAP EPS of $1.51 (beating the consensus of $1.41) on revenue of $2.19 billion (also surpassing the consensus of $2.16 billion), which represents a 12% year-over-year increase. The fiscal year 2024 non-GAAP operating margin was 27.3%, up 320 basis points from fiscal year 2023. Walsh noted that it was a solid finish to the fiscal year, citing Chairman and CEO Nikesh Arora’s positive sentiments about their platformization strategy.
Palo Alto Networks‘ Quant Rating system also reflects a positive stance on the stock, which has consistently outperformed the market.
