Palo Alto (PANW) Down 4.8% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Palo Alto Networks (PANW). Shares have lost about 4.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Palo Alto due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Palo Alto Q1 Earnings and Revenues Surpass Estimates

Palo Alto Networks delivered first-quarter fiscal 2025 non-GAAP earnings of $1.56 per share, which surpassed the Zacks Consensus Estimate by 5.4%. The figure improved 13% year over year, exceeding management’s guidance of $1.47-$1.49.

Palo Alto’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 7.6%.

PANW’s first-quarter fiscal 2025 revenues of $2.14 billion beat the Zacks Consensus Estimate by 0.93% and came marginally higher than management’s guidance of $2.10-$2.13 billion.

The top line rose 14% year over year, driven by an impressive performance across its segments. Additionally, the growing adoption of PANW’s Next-Generation Security platforms, driven by the hybrid work culture and a robust need for stronger security, also boosted first-quarter fiscal 2025 results.

Fiscal Q1 Performance

PANW’s strong top-line performance can be attributed to the immense year-over-year rise in its Subscription & Support revenues backed by a modest increase in its Product revenues.

Product revenues increased 3.7% year over year to $353.8 million and contributed to 16.5% of the total revenues. The company’s Subscription and Support revenues, which accounted for 83.5% of the total revenues, improved 16% to $1.79 billion.

Deferred revenues at the end of the fiscal first quarter were $5.51 billion. Palo Alto’s remaining performance obligation climbed to $12.6 billion, reflecting a year-over-year increase of 20%.

Palo Alto’s next-generation security annualized recurring revenues were $4.5 billion in the reported quarter, which grew 40% year over year and 6.6% from the previous quarter.

Non-GAAP gross profits increased 12.8% to $1.653 billion. The non-GAAP gross margin contracted 70 basis points (bps) to 77.3%. The non-GAAP operating income rose 16.4% to $544.9 million. Meanwhile, the non-GAAP operating margin expanded 60 bps to 28.8% compared with the year-ago quarter.

Balance Sheet & Cash Flow

Palo Alto had cash and cash equivalents and short-term investments of $3.4 billion as of Oct. 31, 2024, compared with $2.56 billion as of July 31, 2024.

PANW generated an operating cash flow of $1.51 billion and a non-GAAP adjusted free cash flow of $1.47 billion in the first quarter fiscal of 2025.

FY25 and Second-Quarter Guidance

For fiscal 2025, Palo Alto expects revenues between $9.12 billion and $9.17 billion, up from the earlier projected range of $9.10-$9.15 billion. Remaining Performance Obligation is still projected in the range of $15.2-$15.3 billion. Next-Gen Security ARR is estimated in the band of $5.52-$5.57 billion, up from the previous forecast of $5.42-$4.47 billion.

PANW’s fiscal 2025 non-GAAP operating margin is still projected in the range of 27.5-28%. Its adjusted free cash flow margin is still estimated in the range of 37-38%. The company expects non-GAAP earnings per share in the range of $6.26-$6.39, up from the previous guidance of $6.18-$6.31.

For the second quarter of fiscal 2025, PANW projects revenues between $2.22 billion and $2.25 billion, which suggests year-over-year growth of 12-14%. Remaining Performance Obligations are anticipated between $12.9 billion and $13 billion. Next-Gen Security ARR is expected in the band of $4.70-$4.75 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Palo Alto has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Palo Alto has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Palo Alto is part of the Zacks Internet – Software industry. Over the past month, Datadog (DDOG), a stock from the same industry, has gained 2.1%. The company reported its results for the quarter ended September 2024 more than a month ago.

Datadog reported revenues of $690.02 million in the last reported quarter, representing a year-over-year change of +26%. EPS of $0.46 for the same period compares with $0.45 a year ago.

Datadog is expected to post earnings of $0.43 per share for the current quarter, representing a year-over-year change of -2.3%. Over the last 30 days, the Zacks Consensus Estimate has changed +4.2%.

Datadog has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.

Zacks Names #1 Semiconductor Stock

It’s only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.

With strong earnings growth and an expanding customer base, it’s positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.

See This Stock Now for Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 5 Stocks Set to Double. Click to get this free report

Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report

Datadog, Inc. (DDOG) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.