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Palo Alto Networks (PANW) Q2 Earnings & Revenues Top Estimates

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Palo Alto Networks PANW reported strong second-quarter fiscal 2022 results, wherein both earnings and revenues not only surpassed the respective Zacks Consensus Estimate but also improved year over year.

The company reported non-GAAP earnings of $1.74 per share, beating the Zacks Consensus Estimate of $1.65. The bottom line improved 12% from the year-ago quarter’s non-GAAP earnings of $1.55 per share.

Palo Alto’s fiscal second-quarter revenues of $1.32 billion surpassed the Zacks Consensus Estimate of $1.28 billion. The top line grew 30% from the year-earlier reported figure.

The top line was aided by several deal wins, increased adoption of Palo Alto’s next-generation security platforms due to hybrid work culture and the heightened need for stronger security.

Palo Alto’s strong quarterly performance reflects its sustained focus on product innovation, a shift in the business model to subscription-based services, platform integration and continued investments in the go-to-market strategy.

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise

Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote

Quarterly Details

Product revenues increased 20.9% year over year to $308 million and contributed 23.4% to total revenues. The company’s subscription and support revenues, which accounted for 76.6% of total revenues, improved 32.4% to $1008.9 million.

Billings jumped 32% to $1.61 billion. Deferred revenues at the end of the second quarter were $2.96 billion. Palo Alto’s remaining performance obligation climbed to $6.3 billion, reflecting a year-over-year surge of 36%.

Palo Alto’s Next-Gen Security (NGS) annualized recurring revenues (ARR) were $1.43 billion in the reported quarter compared with $840 million in the year-ago quarter and $1.27 billion in the previous quarter.

The company’s non-GAAP gross profit increased 27.4% to $975 million. However, non-GAAP gross margin contracted 130 basis points (bps) to 74% primarily due to heightened costs associated with the supply chain issues.

Non-GAAP operating income rose 20% to $242.7 million. However, non-GAAP operating margin contracted 140 bps to 18.4%, mainly due to lower gross margin.

Balance Sheet & Cash Flow

Palo Alto exited the fiscal second quarter with cash, cash equivalents and short-term investments of $3.34 billion compared with $3.46 billion at the end of previous quarter. The company’s balance sheet does not carry any long-term debt.

The company generated an operating cash flow of $482.6 million and a non-GAAP adjusted free cash flow of $441 million during the second quarter. Non-GAAP adjusted free cash flow margin came in at 33.5%.

Guidance

Buoyed by strong second-quarter performance, Palo Alto raised its fiscal 2022 guidance.

The company now anticipates fiscal 2022 revenues of $5.425-$5.475 billion, suggesting growth in the range of 27-29% from the fiscal 2021 level. Earlier, it had projected revenues between $5.35 billion and $5.40 billion, which indicated year-over-year growth of 26-27%.

Total billings are now estimated to be $6.80-$6.85 billion for fiscal 2022, indicating a year-over-year increase of 25-26%. Earlier, it had estimated billings in the range of $6.675-$6.725 billion, implying a 22-23% increase from the year-ago quarter.

Palo Alto raised its non-GAAP earnings guidance ranges from $7.15-$7.25 per share to $7.23-$7.30 per share.

However, non-GAAP adjusted free cash flow margin is still expected in the range of 32-33%.

For the third quarter of fiscal 2022, Palo Alto projects revenues between $1.345 billion and $1.365 billion, suggesting year-over-year growth to be 25-27%.

Total billings are anticipated between $1.59 billion and $1.61 billion, indicating an increase of 24-25% from the year-ago quarter. Non-GAAP earnings are projected to be $1.65-$1.68 per share.

Zacks Rank & Key Picks

PANW currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the broader computer and technology sector include the iPhone maker Apple AAPL and Axcelis Technologies ACLS, both sporting a Zacks Rank #1 (Strong Buy), and Analog Devices ADI carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Apple’s second-quarter fiscal 2022 earnings has been revised upward by 3.6% to $1.43 per share over the past 30 days. For fiscal 2022, earnings estimates have moved north by 5.9% to $6.15 per share in the past 30 days.

Apple’s earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 20.3%. AAPL stock has appreciated 30.8% in the past year.

The Zacks Consensus Estimate for Axcelis’ first-quarter 2022 earnings has been revised upward by 2 cents to 89 cents per share over the past 30 days. For 2022, earnings estimates have moved north by 10.8% to $3.99 per share in the last 30 days.

Axcelis’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 30.3%. Shares of ACLS have rallied 75.6% in the past year.

The Zacks Consensus Estimate for Analog Devices’ first-quarter fiscal 2022 earnings has been revised upward by 23 cents to $2.08 per share over the past seven days. For fiscal 2022, earnings estimates have moved north by 79 cents to $8.32 per share in the past seven days.

Analog Devices’ earnings beat the Zacks Consensus Estimate in each of the preceding four quarters, the average surprise being 6%. Shares of ADI have gained 2.1% in the past year.


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