Palo Alto reports stellar Q2 results, unveils $1 billion share repurchase plan

Palo Alto Networks (NYSE: PANW) reported better-than-expected Q2 earnings continuing the strong momentum from the last quarter. The board also approved a $1 billion stock repurchase plan. Investors are upbeat about the second quarter results with the stock surging above 8% in the extended hours of trading.

For the second quarter, sales increased 30% to $711.2 million while loss narrowed to $0.03 per share over the prior year. On an adjusted basis, EPS surged 43.8% to $1.51 helped by lower tax rates due to tax reforms offset by higher share-based compensation expenses. Q2 results topped estimates on both the revenue and earnings front.

Subscription revenues and product sales grew 29% and 32.6% respectively over the prior year period due to strong demand for the security offerings from its clients. Palo Alto continues to allocate more money to improve its reach and upgrade the existing suite of products to tackle competition. Research and development expenses soared 33% over last year; sales and marketing expenses witnessed a 24% increase as the company expands its global footprint.

Related: Cisco Systems swings to profit in Q2, beats estimates

On the key metrics performance front, billings continued its solid growth increasing 27% compared to Q2 2018. Deferred revenue saw a 32% jump over prior year reflecting solid future growth mainly from the subscription side.

In the first quarter, the security platform has guided earnings for the Q2 to be between $1.20 and $1.22 per share. Revenue is expected to come in the range of $675 million to $685 million. Analysts are forecasting EPS to improve 25.7% to $1.22 and revenue of $682.1 million, an increase of 25.8% over last year. Backed by strong product and subscription revenue first quarter results topped analyst estimates.

Share Repurchase

Last week, Palo Alto’s board approved a $1 billion share repurchase plan with expiry date fixed as December 31, 2020. However, the company didn’t disclose any details about the repurchase schedule.

Q3 Outlook

The security platform forecasts Q3 2019 revenue to be in the range of $697 million to $707 million and adjusted EPS to be between $1.23 and $1.25 including expenses due to the Demisto deal. Analysts are expecting the company to earn $1.24 per share on $696.95 million sales.

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Demisto Deal

On February 19, the company announced the acquisition of security automation provider Demisto for $560 million. Palo Alto expects the deal to be closed by the Q3 period. The Demisto deal will augment the Application Framework offering helping clients in threat prevention domain.

What’s in store?

Earlier today, Palo Alto unveiled Cortex, which is touted to be the only artificial intelligence based security platform which is open and integrated. It also launched Cortex XDR on the threat intelligence front and also introduced the enhanced version of Traps.

With the recent launch of its next-generation firewall platform catering to 5G and IoT clients coupled with the acquisitions like RedLock and Demisto is expected to spruce up the enterprise security offering to its clients. This would help Palo Alto to retain its customer base and upsell the latest products and services to them. These measures are going to augur well to improve the top line in the near future.

When it comes to Palo Alto rivals, FireEye (FEYE) reported strong results in the recent quarter, while Symantec (SYMC) reported a marked decline in Q3 earnings as revenues from its enterprise segment decreased. However, the results surpassed analysts’ forecast.

Stock price of the firm is up 24% already this year aided by the Demisto deal announced earlier this month and has surged over 37% in the last 12 months.

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