The fast-paced adoption of digital technology across industries, a trend that got a boost during the pandemic, has underscored the need for effective solutions to safeguard digital assets. Cybersecurity companies like Palo Alto Networks Inc. (NYSE: PANW) are busy innovating their solutions as demand keeps growing. Palo Alto’s revenues increased steadily in recent years and reached a record high in the last quarter.
The Santa Clara-headquartered tech firm’s stock made its biggest single-day gain during the extended session on Tuesday after it reported stronger-than-expected results for the second quarter of 2023. The impressive numbers reflect continued growth in enterprise spending on technology, especially in cybersecurity, despite the unfavorable macroeconomic conditions. The outcome should come as a morale booster for the broad industry, at a time when it is facing multiple challenges.
A Good Bet?
The positive momentum should help the company create solid shareholder value this year. Businesses will be looking for advanced security products as they shift workloads to cloud platforms and automate various operations. Another demand driver is the proliferation of connected devices and Internet of Things. PANW is likely to maintain the uptrend and go beyond the record highs of April last year. While the valuation looks high, the stock’s strong growth prospects are enough reason to buy it now.
In a sign that Palo Alto’s ongoing investments in the business are bearing the desired results, the company’s software-based and cloud-delivered portfolio performed well in recent years. So, the management has increased its cash flow and operating profit guidance for the third quarter and fiscal 2023.
From Palo Alto Network’s Q2 2023 earnings call:
“Consolidation continues to be a key theme with our customers. Of course, customers are not willing to compromise on quality and cybersecurity. Given our market leadership in 13 categories, we are fortunate to be engaged in many such conversations. Those conversations are driving business, and many customers are on a long-term transformation path with us. The number of deals we closed over $1 million grew nearly 20% year-over-year, and the value of these transactions grew nearly 60%.”
Over the years, the company maintained stable earnings growth that either exceeded or matched estimates in every quarter since it started reporting financial results. In the January quarter, adjusted profit nearly doubled to $1.05 per share and far exceeded analysts’ estimates.
Earnings benefited from a 26% year-over-year increase in revenues and billings to $1.7 billion and $2 billion, respectively. Remaining performance obligation, a measure of future performance obligations arising from contractual relationships, grew an impressive 39% from last year to $8.8 billion.
Palo Alto’s shares traded sharply higher on Wednesday afternoon, continuing the post-earning rally. It has gained a whopping 33% since the beginning of 2023.
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