Palo Alto Networks Inc: Why PANW Stock Just Fell Off a Cliff

PANW StockCan PANW Stock Secure Its Future?

Shares of cybersecurity provider Palo Alto Networks Inc (NYSE:PANW) took a big hit on Monday evening, losing as much as 14% after the company announced weak first-quarter results.

Investors were not amused by the shortfall in revenue, which came in below expectations and nearer the lower end of previous guidance. The company had forecasted between $396.0 million and $402.0 million, so analysts had their official estimates pegged at $400.0 million.

But Palo Alto Networks only made $398.0 million the last three months. (Source: “Palo Alto Drops 14% on FYQ1 Revenue Miss; Q2 Outlook Misses,” Barron’s, November 21, 2016.)

That being said, the ferocity of PANW stock’s decline is intriguing. Investors have sapped billions from the market capitalization of PANW stock, despite the fact that the company outperformed on its bottom line.

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Markets were looking for $0.52 per share in earnings; PANW stock delivered $0.55.

This even beat the company’s internal estimate of $0.51 to $0.53 per share, although it was calculated using an adjusted earnings metric, which leaves out one-time expenditures.

One could argue that markets were disappointed with the outlook of PANW stock, but the company’s billings rose 33% year-over-year. Its deferred revenue also shot through the roof, ending the quarter 69% above the same period last year.

On top of that, both earnings and revenue are expected to remain on an upward track for the next three months, which is a rarity among cybersecurity firms at the moment. Some rivals to PANW stock, like FireEye Inc (NASDAQ:FEYE), aren’t even making profits yet. Others are barely above water.

Nonetheless, PANW stock fell 14% to $138.75 in after-hours trading on Monday.

“In the first quarter fiscal 2017, we added well over 1,500 new customers and saw broad adoption of our Next-Generation Security Platform by our existing customer base,” commented Steffan Tomlinson, chief financial officer of Palo Alto Networks. (Source: “Palo Alto Networks Reports Fiscal First Quarter 2017 Financial Results,” Palo Alto Networks Inc, November 21, 2016.)

“The power of our hybrid-SaaS model was also evident as we continued to grow multiples of our total addressable market at scale, resulting in record quarterly deferred revenue, cash flow from operations of $203.3 million, and free cash flow of $182.4 million.”