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Palo Alto (PANW) Spikes 4% on Q3 Earnings & Revenue Beat

Palo Alto Networks PANW shares soared 4.1% in Tuesday’s extended trading session after the cybersecurity solution provider reported better-than-expected results in the third quarter of fiscal 2023. The company reported non-GAAP earnings of $1.10 per share, beating the Zacks Consensus Estimate of 92 cents. The bottom line improved 83% from the year-ago quarter’s non-GAAP earnings of 60 cents per share.

Palo Alto’s fiscal third-quarter revenues of $1.72 billion surpassed the Zacks Consensus Estimate of $1.71 billion. The top line grew 24% from the year-ago reported figure. The top line was aided by several deal wins and the increased adoption of Palo Alto’s Next-Generation Security platforms, driven by the hybrid work culture and the heightened need for stronger security.

The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote

Quarterly Details

Product revenues increased 10% year over year to $388.1 million and contributed to 22.6% of total revenues. The company’s subscription and support revenues, which accounted for 77.4% of total revenues, improved 28.7% to $1.33 billion.

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Billings increased 26% to $2.26 billion. Deferred revenues at the end of the fiscal third quarter were $4.15 billion. Palo Alto’s remaining performance obligation climbed to $9.2 billion, reflecting a year-over-year increase of 35%.

Palo Alto’s next-generation security annualized recurring revenues were $2.57 billion in the reported quarter compared with $2.33 billion in the previous quarter and $1.61 billion in the year-ago quarter.

Non-GAAP gross profits increased 29.7% to $1.31 billion. The non-GAAP gross margin expanded 320 basis points (bps) to 72.9%, primarily driven by a higher software mix, a reduction in supply-chain costs and some efficiencies in customer support.

The non-GAAP operating income rose 60.8% to $406.7 million. Meanwhile, the non-GAAP operating margin expanded 540 bps to 23.6%.

Balance Sheet & Cash Flow

Palo Alto exited the fiscal third quarter with cash, cash equivalents and short-term investments of $3.96 billion, up from $3.35 billion at the end of the previous quarter. As of Apr 30, 2023, the company had long-term operating lease liabilities of $264.5 million.

PANW generated operating cash flow of $432.1 million and non-GAAP adjusted free cash flow of $400.9 million in the fiscal third quarter. The non-GAAP adjusted free cash flow margin came in at 23.3%.

Raised FY23 Guidance

Palo Alto’s management raised fiscal 2023 guidance. The company now projects revenues between $6.88 billion and $6.91 billion for fiscal 2023 instead of its previous forecast in the band of $6.85-$6.91 billion. This suggests top-line growth of 25-26% from the fiscal 2022 level.

Total billings of PANW are now estimated in the range of $9.18-$9.23 for fiscal 2023, indicating a year-over-year increase of 23-24%. Previously, billings were expected in the $9.10-$9.20 billion band, which suggested a year-over-year increase of 22-23%.

Palo Alto projects non-GAAP earnings in the $4.25-$4.29 per share band compared with the prior guided range of $3.97-$4.03 per share. The non-GAAP adjusted free cash flow margin forecast has also been raised from the range of 36.5-37.5% to the 37.5-38.5% band for fiscal 2023.

For the fourth quarter of fiscal 2023, Palo Alto projects revenues between $1.937 billion and $1.967 billion, suggesting year-over-year growth of 25-27%. Total billings are anticipated between $3.15 billion and $3.20 billion, indicating an increase of 17-19% from the year-ago quarter. Non-GAAP earnings are projected in the range of $1.26-$1.30 per share.

Zacks Rank & Stocks to Consider

Currently, Palo Alto Networks carries a Zacks Rank #3 (Hold). Shares of PANW have increased 36% year to date (YTD).

Some better-ranked stocks from the broader technology sector are Meta Platforms META, Manhattan Associates MANH and CrowdStrike CRWD. While Meta and Manhattan Associates each sport a Zacks Rank #1 (Strong Buy), CrowdStrike carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Meta's second-quarter 2023 earnings has been revised 43 cents northward to $2.87 per share in the past 30 days. For 2023, earnings estimates have been revised 15.2% upward to $12.04 per share in the past 30 days.

Meta’s earnings beat the Zacks Consensus Estimate twice in the preceding four quarters while missing the same on two occasions, the average surprise being 15.5%. Shares of META have surged 105.1% YTD.

The Zacks Consensus Estimate for Manhattan Associates' second-quarter 2023 earnings has been revised upward by a couple of cents to 72 cents per share for the past 30 days. For 2023, earnings estimates have moved upward by 17 cents to $2.87 per share in the past 30 days.

Manhattan Associates' earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 33.6%. Shares of MANH have soared 42.1% YTD.

The Zacks Consensus Estimate for CrowdStrike’s first-quarter fiscal 2024 earnings has been revised a penny northward to 50 cents per share in the past 60 days. For fiscal 2024, earnings estimates have been increased to $2.30 per share from $2.26 60 days ago.

CrowdStrike's earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 24.4%. Shares of CRWD have increased 38.2% YTD.

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