The Santa Clara, Calif.-based company posted adjusted earnings of 55 cents per share for its first fiscal quarter of 2017 on revenue of $398.1 million. Wall Street was looking for adjusted earnings of 52 cents a share on revenue of $400.3 million.
Product revenue was $163.8 million and subscription and support revenue was $234.3 million, while analysts projected $166.9 million and $233.5 million, respectively. First-quarter billings jumped 33% year-over-year to $516.9 million but fell short of Wall Street's estimates of $525 milion.
Palo Alto Networks anticipates adjusted earnings per share of 61 cents to 63 cents on revenue between $426 million and $432 million for the second quarter of 2017. Analysts surveyed by FactSet expect adjusted earnings of 63 cents per share on revenue of $439 million.
For the fiscal year, Palo Alto Networks forecasts that revenue will climb 30% to 31% year-over-year with product revenue gaining 12% to 13% annually. Adjusted earnings per share are projected between $2.75 and $2.80. Wall Street is looking for annual revenue growth of 33% and adjusted earnings of $2.78 per share.
Shares of Palo Alto Networks were slumping about 13% to $140.79 on Tuesday morning following the results. Roughly 2.68 million shares have traded hands so far today, well above the 30-day average of 1.36 million.
Here's what Wall Street's saying about the quarter:
Jack Andrews, DA Davidson (Buy, $186 PT)
"While win rates remain as high as ever, some larger deals got pushed out. Given the increasing strategic nature of security and PANW's platform, more approvals are sometimes required. Nevertheless, management revealed that about half of the pushed deals have closed since, and they have "line of sight" into the remainder... Management cited competitive displacements of other software security companies including Check Point (CHKP) , Cisco (CSCO) , Fortinet and FireEye (FEYE) . Despite pricing pressures from other security vendors, PANW's competitive position appears stable, as reflected in an uptick in gross margins."
Saket Kalia, Barclays (Overweight, $175 PT)
"More positive catalysts probably in 2H; longer term call hinges on refresh and renewals which drive FCF growth. From here, the catalysts feel more 2H weighted as 2Q will be the low point for product growth, and refresh should contribute more in 2H. Longer term, we believe the bull case hinges on increasing firewall refresh to turn product billings in FY18, along with increasing renewals with more upsell. Both of these drive FCF, where we forecast ~$1.1B in FY18 on which we assign a 12x multiple on reported FCF, and 20x our FCF ex-stock comp for our revised $175 price target. Our previous $200 price target was based on ~20x our FY17E FCF of $920M."
Rob Owens, Pacific Crest (Overweight, $190 PT)
"This is only the second quarter in its history with revenue below consensus, and will likely be met with skepticism and a sell-off across the space... We exit FQ1 surprised by results, but unwilling to throw in the towel, as we feel Palo Alto remains one of the best-positioned security companies longer-term. While management has seen a less-linear and less-predictable set of challenges this year, ultimately growth has remained impressive at scale and even lowered estimates imply more of the same. Further, a modest valuation after a number of resets implies opportunity."