Palo Alto Networks Q2 Earnings: Stock Plummets After Soft Guidance, EPS Beat, Revenue Up 19%

7 months ago

Palo Alto Networks Inc (NASDAQ:PANW) reported fiscal second-quarter financial results Tuesday after the bell. Here’s a look at the key metrics from the quarter.

Q2 Earnings: Palo Alto’s fiscal second-quarter revenue increased 19% year-over-year to $1.98 billion, which beat the consensus estimate of $1.97 billion, according to Benzinga Pro. The company reported quarterly earnings of $1.46 per share, which beat analyst estimates of $1.30 per share.

Remaining performance obligations grew 22% year-over-year to $10.8 billion. Adjusted operating margin grew 580 basis points year-over-year to 29%.

“Our leadership across all of our three platforms and growing cross-platform adoption puts us in a strong and unique position,” said Nikesh Arora, chairman and CEO of Palo Alto Networks.

Transcript

00:00 What a day and what a night for earnings.

00:03 Huge, huge, huge tech movers.

00:06 And I mean something fierce here.

00:08 Let's start with the big daddy from last night,

00:11 which is having one of its worst days ever here today.

00:15 Palo Alto Networks down $87.

00:19 Now the MOMO trade coming off fiercely here.

00:23 $1.46 versus $1.30.

00:25 Was a beat on the bottom line.

00:26 Top line beat as well.

00:27 $1.98 billion versus $1.97 billion.

00:31 Guidance just slightly light.

00:32 And when you're a MOMO company with a 50 PE or 55 PE,

00:38 you can't have light guidance.

00:39 $1.24 to $1.26 for Q3.

00:41 Analyst estimates were up at $1.29.

00:43 Revenue guidance for Q3 also light.

00:46 $1.98 billion versus analyst estimates of $2.04 billion.

00:53 Full year, they're still seeing that they're going to hit $5.45

00:56 to $5.55.

00:58 Estimates around $5.51.

00:59 But again, that's not a blow away.

01:01 Even if it's in line on that guidance,

01:03 it's not good enough when you've got a PE of 55 or 60.

01:07 That PE coming in rapidly here today because the stock has

01:10 fallen so far.

01:11 I was just doing the calculation before I

01:13 started the pre-market show.

01:14 PE now, if they do hit that $5.55 target,

01:17 is only 50 on P, A, and W, which is as low

01:21 as it's been for a while.

01:22 Now still, the PE is still 50.

01:26 So I don't know.

01:27 If the growth slows a little bit here, is it worth 50?

01:30 That's the question.

01:31 That's what the question the market's asking.

01:33 But wow, if you were looking for a dip to buy Palo Alto

01:35 networks, you got your wish.

01:37 All right, we do got the Benzinga Pro up now.

01:40 What right now, Dennis, would you

01:43 say are the biggest stocks moving with this report

01:46 on Palo Alto this morning?

01:49 All the cybersecurity stocks are getting hammered here.

01:52 So we'll do the technicals.

01:53 We'll just go through them.

01:55 Wherever you want to go, Fortinet, CyberArk,

01:58 you could go Sentinel One is really getting hit,

02:01 because Sentinel One is really had a move.

02:03 S, there's just a pile of them.

02:05 If you want to just look at the ETF,

02:06 hack, CrowdStrike getting just kicked in here this morning.

02:10 That's a big fall for CrowdStrike, down 9.6%.

02:14 Again, all these stocks got lofty PEs.

02:17 So you don't want to see inline earnings or slight misses.

02:20 That's just not going to do it.

02:22 This MOMO trade, just talk the overall market here

02:25 for a second, was coming unwound yesterday.

02:27 It started with SMCI on Friday.

02:29 Then it spilled over to all the MOMO stocks.

02:32 We talked on the show even about Lilly

02:34 being the potential for coming back down.

02:36 Well, that has happened here, because obviously MOMO stock

02:40 as well opened right at the highs.

02:41 If you started the open, you basically took no heat.

02:44 Sold off 45 points.

02:46 It's got another downgrade.

02:47 We'll get to that in a second.

02:48 But just talking overall, MOMO trade in two days

02:52 went from bliss to that P-I-S-S word.

02:55 So not looking that great if you're

02:58 long all these MOMO stocks.

02:59 With that being said, AB, you're a young guy.

03:03 Do you look at Palo Alto Networks and think,

03:05 well, hacks aren't going away.

03:07 We're going to need cybersecurity probably

03:09 for the rest of our lives here.

03:12 Do you look at Palo Alto Networks

03:13 as a leader in the space and say,

03:15 I'm willing to pay a PE of 50 for this thing,

03:18 because I think they're going to grow earnings over time.

03:21 Thoughts, concerns, AB.

03:23 Yeah, I mean, so like you said, I mean, over time--

03:26 and especially with--

03:27 we were talking about this with Chaikin.

03:29 The more and more companies are moving toward integrating AI

03:33 and stuff like that into the workflow,

03:35 I think there's going to be more and more need

03:37 for good cybersecurity.

03:40 And over time, I do think this industry will just

03:43 continue to grow.

03:44 So any of these names, whether you're

03:46 talking about Fortinet, Palo Alto,

03:48 like I could get talked into holding long term.

03:51 I guess one of my big concerns with this, Dennis,

03:53 would be that why wouldn't the biggest tech players,

03:57 Microsoft, et cetera, why wouldn't they also

03:59 be a good cybersecurity play?

04:02 I don't know if Microsoft hires some of these cybersecurity

04:07 companies.

04:07 But when you're talking about how many companies use,

04:11 say, Microsoft Office or Microsoft Teams,

04:13 obviously you want that stuff to be secure.

04:15 You don't want corporate secrets,

04:18 companies getting hacked, stuff like this.

04:20 But again, the more and more companies move toward AI

04:24 and stuff like this, I think there will be more demand

04:26 for cybersecurity.

04:27 So long term, yeah, I think basically anything

04:32 in this space I wouldn't mind holding.

04:34 I don't have a edge in saying, OK, I

04:36 like Fortinet more than Palo Alto right now,

04:40 anything like that.

04:41 You can see this morning, you got a lot of downgrades

04:44 coming in on Palo Alto.

04:48 Rosenblatt lowers the price target to $265.

04:50 That's coming after some really bullish price

04:52 targets from Rosenblatt the last few days.

04:55 Loop Capital downgrades Palo Alto to hold

04:58 an ounce's $300 price target.

04:59 So again, when we talked about shaking with this,

05:02 that kind of the cybersecurity players or IT players

05:05 could be kind of these auxiliary plays for the AI trade.

05:09 I don't think that story is going away.

05:11 But again, I don't have an edge in terms of, hey,

05:13 I love Palo Alto compared to Fortinet or whatever.

05:17 I think the industry will be fine in the long run, though.

05:19 I think it's something, and a good point you're making

05:22 is the bar is to entry here.

05:25 The barrier is to entry.

05:27 There's a lot of these cybersecurity stocks.

05:29 And I don't cover the industry well enough

05:31 to know how they differentiate from each other.

05:34 So is there going to be more in the future?

05:36 Are some of these companies, to your point,

05:38 going to start doing cybersecurity on their own

05:41 like Microsoft does do some stuff?

05:43 Like, do they need Sentinel One?

05:45 Do they need Palo Alto?

05:46 Do they need CrowdStrike?

05:48 Or will they figure it out on their own?

05:49 I mean, there's all those things to consider.

05:51 So it's not a slam dunk to just come in here and say,

05:56 yeah, Palo Alto Network cybersecurity,

05:58 we're going to need that in the future.

05:59 And we're going to pay 50 times right now.

06:01 We're going to make a lot of money with that.

06:03 With that being said, good companies,

06:05 buying good companies on dips,

06:07 and Palo Alto has been one of the best,

06:08 has been rewarded in the past.

06:10 So if you're coming in here today,

06:13 I won't argue with you.

06:14 I won't say, you know, like, well, what are you doing?

06:16 You know, this is, you know,

06:17 obviously a really disappointing quarter.

06:19 I get it.

06:20 Part of me wants, I don't have any cybersecurity

06:22 as my long-term portfolio cybersecurity stock.

06:24 So part of me wants to join you and say,

06:26 hey, Palo Alto Network's down 23% today.

06:29 Sounds like, you know, like that's the time

06:31 to be coming in here.

06:32 I think I wait until the dust settles a little bit though.

06:36 Again, to quote my friend, Brian Shannon,

06:39 buy the strength after the dip.

06:41 Don't buy the initial dip

06:43 because sometimes those initial dips continue to fall.

06:45 And you know, sometimes they bounce right back,

06:48 but we've kind of turned.

06:49 If we would have,

06:50 Palo Alto Network's reported this last week

06:52 when we were buying MOMO stocks,

06:54 it has a better tendency to bounce back,

06:56 but the market has turned against MOMO

06:59 at least, you know, for the last couple of days.

07:01 So it's a little bit of a tough day for it to report into.

07:04 Good support down here.

07:05 If we look at the charts and let's do, you know,

07:07 maybe you can zoom into the early January.

07:09 We're back to the January lows here.

07:11 So we're just basically giving back this year's gains.

07:14 So we're not going back like years and years of gains here.

07:16 We're giving back this year's gains.

07:17 The lows for this year back in January, 282,

07:21 multiple lows at 282, 281.

07:23 We're at 279.

07:24 Can we get back up at 281 and hold that?

07:27 Well, that's if you're bullish a stock,

07:28 that's what you want to see.

07:29 You want to see that 281 hold.

07:31 You don't want to see it starts breaching that.

07:32 Then you start thinking the stock could go to 250,

07:34 but the stock is still expensive and it just disappointed.

07:39 Maybe I'm going to sit on the sidelines for a bit.

Palo Alto Networks Q2 Earnings: Stock Plummets After Soft Guidance, EPS Beat, Revenue Up 19%

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