Palo Alto Networks (PANW) recently announced its fiscal 2024 first-quarter results, reporting strong numbers but lowering its full-year billings outlook. This caused the stock to slide in after-hours trading due to concerns over the rising cost of money.
Revenue for the quarter ended Oct. 31 increased 20% year-over-year to $1.88 billion, beating the consensus estimate of $1.84 billion. Additionally, adjusted earnings per share grew 66% to $1.38, exceeding estimates. GAAP earnings also rose to 56 cents per share, well above forecasts of 39 cents.
While total billings increased about 16% year-over-year to $2.02 billion, it fell short of estimates and below management’s expected range. This led to questions about the company’s future growth prospects.
Management stated that the change in billings outlook is not due to a decline in demand, but rather a result of the discounts and financing plans offered to customers to help them navigate the higher interest rate environment.
Palo Alto believes that focusing on its low churn and remaining performance obligation (RPO) and current remaining performance obligation (cRPO) metrics, instead of billings, is more important at this time. RPO increased 26% in the quarter, outpacing the growth in billings, and the company expects it to continue growing to support future revenue growth targets.
Despite the confusion surrounding the billings outlook, we believe that this is merely a short-term misunderstanding by the market. With strong quarterly margins and free cash flow, and the increasing importance of cybersecurity for companies, we see this as a buying opportunity.
Looking ahead, the company expects total billings in the range of $2.34 billion and $2.39 billion for the fiscal 2024 second quarter, and total revenue of $1.96 billion to $1.97 billion. Management has also lowered its full-year billings outlook to $10.7 billion to $10.8 billion, but raised its non-GAAP earnings guidance.
As the sixth-best performer in the S & P 500 year to date, Palo Alto Networks’ strong balance sheet and software and cloud strategy give us confidence in its future growth potential.
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