Shares of cybersecurity provider Palo Alto Networks (NASDAQ:PANW) fell 9.4% in the morning session after the company reported first quarter results with its full-year revenue guidance missing analysts' expectations. It also lowered its full year billings forecast, citing higher interest rates. On the other hand, Palo Alto Networks beat analysts' revenue and EPS expectations this quarter, driven by better-than-expected ARR (annual recurring revenue) and cRPO (remaining performance obligation). We were also glad its gross margin improved. Zooming out, we think this was still a mixed but overall underwhelming quarter, with the billings guide-down as the key negative.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Palo Alto Networks? Access our full analysis report here, it's free.
What is the market telling us:
Palo Alto Networks's shares are somewhat volatile and over the last year have had 9 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the company dropped 7.3% on the news that competitor, Microsoft, introduced new products that could challenge its network and cloud security offerings. The products, called Microsoft Entra Internet Access and Microsoft Entra Private Access, are still in testing and have no pricing details yet. However, analysts said they could boost Microsoft's security business. Hamza Fodderwala of Morgan Stanley added that "This is potentially the largest and last major cybersecurity market that Microsoft has yet to enter and it is now competing with cloud network security providers, mainly ZS, NET, PANW." Although the details of the products are still murky, what is clear is that Microsoft has a massive install base of Office, Azure, server, and Dynamics customers into which they can easily cross-sell new products and take share from incumbents.
Palo Alto Networks is up 72.3% since the beginning of the year, and at $238.97 per share it is trading close to its 52-week high of $261.74 from October 2023. Investors who bought $1,000 worth of Palo Alto Networks's shares 5 years ago would now be looking at an investment worth $4,220.
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