PANW Stock Drops After Earnings
As Palo Alto Networks Inc (NYSE:PANW) learned on Thursday, investors can be unforgiving about an earnings miss. PANW stock dropped 10% in morning trading as the market digested its quarterly report.
The entire cybersecurity industry has been pummeled in the last year, but some analysts believed Palo Alto Networks could buck the trend. With consistent triple-digit growth on its top line, the company had won itself a long line of credit from investors.
However, it seems the company’s balance is now overdue.
PANW stock delivered $345.8 million in sales, up 48% from a year before—that was strike number one. (Source: “Palo Alto Networks Reports Fiscal Third Quarter Results,” Palo Alto Networks Inc, May 26, 2016.)
The company’s adjusted earnings per share clocked in at $0.42 compared to the estimated $0.48–$0.50 per share analysts expected (ouch)—that was strike number two. (Source: “Palo Alto Networks sinks on subdued fourth-quarter outlook,” MarketWatch, May 26, 2016.)
Those two reasons could explain why Palo Alto Networks lost 10% of its market cap in just a few hours, but there may be an additional factor at play: unadjusted earnings.
Without the financial gymnastics it took to arrive at $0.42 per share, Palo Alto officially made a loss of $70.2 million…$70.2 million!
When did it become acceptable for companies to generate massive (and ever-widening) losses without consequences?
Sales growth, rather than profits, has become Wall Street’s defining metric for Silicon Valley. Companies are able to skim by on little more than promises, but there’s some reason to believe that era is coming to an end.
Facebook Inc was the only major tech player to score big this earnings season; every other stock took a hit after results were announced.
Palo Alto Networks fits this pattern quite clearly. Its falling stock price may be an indication that Wall Street is growing impatient with technology companies that can’t seem to turn a profit.
Strike three and you’re out, PANW stock.