Palo Alto Networks (PANW) Q2 profit beats estimates but guides Q3 below view

Palo Alto Networks (NYSE: PANW) reported a wider loss in the second quarter of 2020 due to an increase in costs and expenses. The bottom line exceeded analysts’ expectations while the top line missed consensus estimates. Further, the company guided third-quarter revenue and earnings below the street’s view.

Net loss widened to $73.7 million from $2.6 million in the previous year quarter. Adjusted earnings decreased by 21% to $1.19 per share. Revenue jumped by 15% to $816.7 million. The consensus estimates EPS of $1.12 on revenue of $843.26 million for the second quarter.

The overall results showed many signs of positive momentum, notably billings for next-generation security offerings continued to perform very well. The top line was below the company’s forecast as a result of the continued impact of sales incentives related to next-generation security products from the prior fiscal year.

Looking ahead into the third quarter, the company expects billings to grow by 19-22% to the range of $0.98-1.0 billion, and revenue to increase by 15-17% to $835-850 million. Adjusted earnings are anticipated to be $0.96-0.98 per share. Analysts expect EPS of $1.25 on revenue of $873.02 million for the third quarter.

For fiscal 2020, Palo Alto now predicts billings to grow by 17-18% to the range of $4.075-4.125 billion and revenue to rise by 16-17% to the range of $3.35-3.39 billion. Adjusted earnings are anticipated to be in the range of $4.55-4.65 per share. The consensus estimates EPS of $4.96 on revenue of $3.47 billion for fiscal 2020.

The board of directors authorized the company to enter into a $1 billion accelerated share repurchase transaction. The company plans to enter into an ASR transaction with a financial institution during its fiscal third-quarter 2020. This is in addition to its $1 billion share repurchase program that was announced in February 2019. As of January 31, 2020, $801.9 million remained available for future share repurchases under this program.

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For the second quarter, the top-line growth continues to reflect the increased adoption of its hybrid software-as-a-service (SaaS) revenue model, which consists of products, subscriptions, and support. The company believes this model will enable it to benefit from recurring revenue as it continues to grow installed end-customer base.

The company believes that the growth of its business and short-term and long-term success are dependent on many factors, including its ability to extend technology leadership, growing base of end-customers, expand deployment of platforms and support offerings within existing end-customers, and focus on end-customer satisfaction.

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