Cloud Stocks: Palo Alto Targets $5B Revenue By 2022

Cyber security player Palo Alto Networks (NYSE:PANW) recently announced its first quarter results that outpaced market expectations. The company has had a strong run this year, with its stock growing 20% during the year. But a weak outlook for the second quarter sent its stock tumbling 11% in the after-hours trading session post result announcement.

Palo Alto Networks’ Financials
For the first quarter, its revenues grew 18% over the year to $771.9 million, ahead of the Street’s estimate of $769 million. Adjusted earnings fell 10% over the year to $1.05 per share, but were ahead of the market’s forecast of $1.03 per share.

While the quarter’s performance was impressive, sales in the product segment fell 4% over the year to $231.2 million – the first ever decline in the segment in the last 11 quarters. The shift reflects the growing importance of the subscription segment. Analysts stated that “the magnitude and timing of the over stimulating focus on cloud security products left the firewall pipeline drained for the first quarter”. Subscription and support revenues grew 30% over the year to $540.7 million driven by a 38% growth in subscription revenues and 21% increase in services revenues.

Billings for the quarter grew 18% to $897.4 million with deferred revenues growing 26% to $3 billion.

For the current quarter, the company expects earnings of $1.11-$1.13 per share, significantly short of the Street’s expected earnings of $1.28 per share. The lower than expected earnings were attributed to the cost of acquisitions. Palo Alto Networks expects revenues of $838-$848 million for the second quarter and $3.44-$3.48 billion for the current year. It forecast the year’s earnings at $4.9-$5 per share. The market was looking for revenues of $851.28 million for the quarter and $3.46 billion for the year.

Palo Alto Network’s Acquisition Growth

Palo Alto Networks is targeting $6 billion in billings and $5 billion in revenues by fiscal 2022. It has been on an acquisition spree to deliver on this target. Recently, it announced the $150 million acquisition of San Jose-based cloud security startup Aporeto. Set up in 2016, Aporeto offers a comprehensive cloud-native security for containers and microservices. It identifies workloads and applies micro-segmentation across all infrastructures, thus allowing customers to secure applications at scale.

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Sramana Mitra is the founder of One Million by One Million (1M/1M), a global virtual incubator that aims to help one million entrepreneurs ...

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