Palo Alto Networks Inc. (PANW) - Get Report shares traded sharply lower Tuesday after the security and cloud software group guided investors towards a softer end to the year that offset solid first quarter results.
Palo Alto said earnings for the three months ending in October, the company's fiscal first quarter, came in at $1.05 per share, down 10.25% from the same period last year but 2 cents ahead of the Street consensus forecast. Group revenues also impressed, rising nearly 18% to $771.9 million, again topping analysts' forecasts of a $769 million tally.
Looking into the final months of the calendar year, however, Palo Alto said it sees earnings in the region of $1.11 to $1.13 per share, well shy of the Refinitiv consensus of $1.30, and revenues of between $838 million and $848 million. Full-year revenues were pegged at $3.44 billion to $3.48 billion.
"I am delighted to report that after a great Q4, we have maintained the momentum and have been able to better our plans, delivering next-generation security billings of $170 million, which is 217% year-over-year," CEO Nikesh Arora told investors on a conference call late Monday.
"The one area that we did not deliver to our expectation in the quarter is product, which weighed on the growth of the firewall as a platform category and grew only 11% year-over-year," he added. "In fiscal 2019, we provided incentives to our teams to build our next-generation security business. By Q4, they showed us they could with very strong results."
"That momentum carried into the start of fiscal 2020, with strong next-generation security pipeline going into Q1," Arora said. "However, even though we have balanced our sales incentives this year, it looks like it's going to take us a little more for that change to take effect."
Palto Alto shares were marked 10.5% lower in early trading Tuesday to change hands at $224.00 each, a move that would trim the stock's year-to-date gain to around 20%.
"We believe that Pall Alto's quarter was disappointing on many fronts," said BMO Capital Markets analyst Keith Bachman. "Foremost, product revenue growth was negative 4% y/y, and we think guidance implies a few more Q's of negative product revenue growth."
"While comp plans can induce less focus on products and more on subscription services, we note that Palo Alto Networks reported and implied product growth rates that are much weaker than Fortinet Inc (FTNT) - Get Report ."