Palo Alto (PANW) Billings Forecast Key To Post Earning Price Move

PANW is expected to report a 10.7% increase in revenue to $2.162 billion from $1.95 billion a year ago. Palo Alto's guidance on 20 May 2024, for the period ended 31 July, was for revenue between $2.15 billion and $2.17 billion. (SAL is based on Total Revenue)

The consensus estimate for earnings per share is expected at $1.41 per share. This is within the EPS guidance on 20 May 2024, for the period ended 31 July of between $1.40 and $1.42

The incessantly growing threat of cyberattacks has become a major concern for companies and cybercrimes are expected to cause $10.5 trillion in yearly damage by 2025, resulting in a $1.5-$2 trillion market opportunity for cybersecurity solutions. The rise of AI also warrants the need for greater precautions against the evolving threat landscape.

Cybersecurity company Palo Alto Networks has rapidly become a leader in the field to detect cyber threats for enterprises. The company possesses a comprehensive cybersecurity portfolio to help enterprises on their digital journey.

PANW is facing a choppy macroeconomic situation and revenue growth has somewhat slowed. In the fiscal 2024 second quarter (ended 31 Jan 2024), Palo Alto Networks’ total revenue came in at $1.98 billion, up 19% from the prior-year period, which is slower than the year-over-year growth exhibited between the Q2 revenues of fiscal 2023 and 2022, and fiscal 2022 and 2021.

On the bright side, Q2 2024 was the company’s 8th consecutive quarter of operating margin expansion, when its non-GAAP operating margin reached 28.6%. Total billings, defined as total revenue plus changes in total deferred revenue net of total acquired deferred revenue, climbed by 16% year-over-year to $2.35 billion, indicating a focused operation despite experiencing weakness in its federal vertical.

On a trailing-12-month basis, Palo Alto Networks generated $2.90 billion in adjusted free cash flow, while non-GAAP earnings per share grew by 39% year-over-year to $1.46, which highlighted that – even without one-time items – the bottom line is growing.

Despite posting moderate yet meaningful financial growth, the company’s Q2 results also led to a sell-off in the stock due to subdued guidance.

After the earnings release, the share price fell by 28%, marking the worst day since its IPO, as the company lowered its fiscal-year billings outlook from $10.70-$10.80 billion to $10.10-$10.20 billion. Revenue outlook decreased from $8.15-$8.20 billion to $7.95-$8.00 billion.

To curtail this slowdown, Palo Alto Networks is gearing toward greater cybersecurity consolidation, essentially shifting to an integrated security approach that better positions the company to counter risks. To reach an annualized recurring revenue (ARR) of $15 billion by 2030, it accelerated its “platformization” and consolidation strategy.

Considering the market share that PANW have held, we might be able to see slightly higher billings for upcoming reporting quarter, and there might be some coming from CrowdStrike customers.

Considering the 13% return from Palo Alto network, this might not sound significant, but with the challenge coming from geopolitical and stiff competition in the cyber security and networking space, this is considered to be quite impressive.

I am expecting Palo Alto to do better in the upcoming quarter as the AI revolution is moving into the end user and software enhancement phase, so the need for security appliance would be more important for data center.

More security would be needed in terms of protecting traffic between consumers getting to the AI solutions and then returning the results. Mid-stream traffic protection would be more in focus.

Based on 38 Wall Street analysts offering 12 month price targets for Palo Alto Networks in the last 3 months. The average price target is $350.96 with a high forecast of $391.70 and a low forecast of $275.00. The average price target represents a 5.04% change from the last price of $334.11.

If we were to look at the prospect of PANW and Cisco, its closest competitor, I would say that we cannot be expect a huge increase in the price target, but we should be able to see a significant increase over the next few months as PANW benefit from the demand and hence billings should increase.

If we were to look PANW current stock price, its is comfortably above the 50-day period and we are seeing a crossover formed recently, there have been some correction before its earnings today (19 Aug).

This could be due to the sell off of investors taking profit.

We are seeing confirmed upside from the MACD, though a slight dip was seen recently, but there should not be much of a concern, but on the KDJ side, we are seeing the J value making a downside move, this could signal that we might see some investors selling prior to the earnings release later today (19 Aug).

This is something that we might want to monitor and watch the price action on how the buying and selling strength might be forming.

PANW have flagged a hostile macroeconomic backdrop for sluggishness and it has adopted transformative approaches to address a slowdown.

Though PANW headwinds is not that clear, but we have seen how its closest competitor Cisco has borne the brunt with top and bottom-line declines. So there might be some impact to how PANW billings might show up.

I would be more interested on PANW future billings for the next few quarter and 2024, whether they are maintaining and gaining more market share than 2023.

Appreciate if you could share your thoughts in the comment section whether you think PANW outlook and billing forecast would be better than expected?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.