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Palo Alto Networks (NYSE:PANW) Q3: Beats On Revenue, Stock Jumps 11.5%


Jabin Bastian /
2022/05/19 4:27 pm EDT
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Cybersecurity provider Palo Alto Networks (NYSE:PANW) reported Q3 FY2022 results that beat analyst expectations, with revenue up 29.1% year on year to $1.38 billion. The company expects that next quarter's revenue would be around $1.54 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 $73.2 million, improving on its loss of $145.1 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) Q3 FY2022 Highlights:

  • Revenue: $1.38 billion vs analyst estimates of $1.36 billion (2.03% beat)
  • EPS (non-GAAP): $1.79 vs analyst estimates of $1.68 (6.63% beat)
  • Revenue guidance for Q4 2022 is $1.54 billion at the midpoint, roughly in line with what analysts were expecting
  • Gross Margin (GAAP): 68.2%, down from 69.2% same quarter last year

"We saw strong top-line growth in Q3, which is a testament to our teams' consistent execution in capitalizing on the strong cybersecurity demand trends," 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 $1.07 billion, to $1.38 billion.

Palo Alto Networks Total Revenue

This quarter, Palo Alto Networks's quarterly revenue was once again up a very solid 29.1% year on year. Quarter on quarter the revenue increased by $69.8 million in Q3, which was in line with Q2 2022. This steady quarter-on-quarter growth shows the company is able to maintain its steady growth trajectory.

Guidance for the next quarter indicates Palo Alto Networks is expecting revenue to grow 26.3% year on year to $1.54 billion, in line with the 28.2% 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 22.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 68.2% in Q3.

Palo Alto Networks Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.68 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 it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from Palo Alto Networks's Q3 Results

With a market capitalization of $43.1 billion and more than $3.87 billion in cash, the company has the capacity to continue to prioritise growth.

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. On the other hand, there was a deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 11.5% on the results and currently trades at $487 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.