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Palo Alto Networks (NYSE:PANW) Exceeds Q2 Expectations, Next Quarter Growth Looks Optimistic


Radek Strnad /
2022/02/22 4:11 pm EST
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Cybersecurity provider Palo Alto Networks (NYSE:PANW) reported results ahead of analyst expectations in the Q2 FY2022 quarter, with revenue up 29.5% year on year to $1.31 billion. The company expects that next quarter's revenue would be around $1.35 billion, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Palo Alto Networks made a GAAP loss of $93.5 million, improving on its loss of $142.3 million, in the same quarter last year.

Is now the time to buy Palo Alto Networks? Access our full analysis of the earnings results here, it's free.

Palo Alto Networks (PANW) Q2 FY2022 Highlights:

  • Revenue: $1.31 billion vs analyst estimates of $1.28 billion (2.74% beat)
  • EPS (non-GAAP): $1.74 vs analyst estimates of $1.65 (5.62% beat)
  • Revenue guidance for Q3 2022 is $1.35 billion at the midpoint, above analyst estimates of $1.34 billion
  • The company lifted revenue guidance for the full year, from $5.37 billion to $5.45 billion at the midpoint, a 1.39% increase
  • Gross Margin (GAAP): 69.2%, in line with same quarter last year

"In Q2, our company continued to benefit from strength across our three security platforms, driven by strong cybersecurity demand, organizations architecting for hybrid work and growing their hyperscale cloud footprints," said Nikesh Arora, chairman and CEO of Palo Alto Networks.

Founded in 2005 by a cybersecurity engineer Nir Zuk, Palo Alto Networks makes hardware and software cybersecurity products that protect companies from cyberattacks, breaches and malware threats.

Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. The migration of businesses to the cloud and employees working remotely in insecure environments is increasing demand modern cloud-based network security software, which offers better performance at lower cost than maintaining the traditional on-premise solutions, such as expensive specialized firewall hardware.

Sales Growth

As you can see below, Palo Alto Networks's revenue growth has been strong over the last year, growing from quarterly revenue of $1.01 billion, to $1.31 billion.

Palo Alto Networks Total Revenue

This quarter, Palo Alto Networks's quarterly revenue was once again up a very solid 29.5% year on year. On top of that, revenue increased $69.5 million quarter on quarter, a very strong improvement on the $28.1 million increase in Q1 2022, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Palo Alto Networks is expecting revenue to grow 26.1% year on year to $1.35 billion, improving on the 23.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 22.3% over the next twelve months.

There are others doing even better than Palo Alto Networks. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Palo Alto Networks's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 69.2% in Q2.

Palo Alto Networks Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.69 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and we would like to see it start improving.

Key Takeaways from Palo Alto Networks's Q2 Results

Sporting a market capitalization of $47.5 billion, more than $3.34 billion in cash and with positive free cash flow over the last twelve months, we're confident that Palo Alto Networks has the resources it needs to pursue a high growth business strategy.

It was good to see Palo Alto Networks deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 1.36% on the results and currently trades at $482 per share.

Should you invest in Palo Alto Networks right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.