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Palo Alto Networks (NYSE:PANW) Reports Upbeat Q4, Stock Soars


Kayode Omotosho /
2021/08/23 4:08 pm EDT
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Cybersecurity provider Palo Alto Networks (NYSE:PANW) reported Q4 FY2021 results that beat analyst expectations, with revenue up 28.2% year on year to $1.21 billion. Palo Alto Networks made a GAAP loss of $119.3 million, down on its loss of $58.9 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) Q4 FY2021 Highlights:

  • Revenue: $1.21 billion vs analyst estimates of $1.17 billion (3.96% beat)
  • EPS (non-GAAP): $1.60 vs analyst estimates of $1.44 (11.2% beat)
  • Revenue guidance for Q1 2022 is $1.2 billion at the midpoint, above analyst estimates of $1.14 billion
  • Management's revenue guidance for upcoming financial year 2022 is $5.3 billion at the midpoint, predicting 24.5% growth (vs 21.1% in FY2021)
  • Gross Margin (GAAP): 70.5%, up from 69.2% previous quarter

"Our strong Q4 performance was the culmination of executing on our strategy throughout the year, including product innovation, platform integration, business model transformation and investments in our go-to-market organization," said Nikesh Arora, chairman and CEO of Palo Alto Networks.

Founded in 2005, 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 are also contributing to increasing demand for modern cybersecurity software.

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 $950.4 million, to $1.21 billion.

Palo Alto Networks Total Revenue

This quarter, Palo Alto Networks's quarterly revenue was once again up a very solid 28.2% year on year. On top of that, revenue increased $145.4 million quarter on quarter, a very strong improvement on the $57 million increase in Q3 2021, which shows acceleration of growth, and is great to see.

Analysts covering the company are expecting the revenues to grow 18% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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 400% since the IPO in 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, licences, technical support and other necessary running expenses was at 70.5% in Q4.

Palo Alto Networks Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Palo Alto Networks's Q4 Results

Sporting a market capitalisation of $35.7 billion, more than $2.9 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.

We were impressed that Palo Alto Networks guided for revenue growth to accelerate next year. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this was a great quarter and we have no doubt shareholders will feel excited about the results. The company is up 5.38% on the results and currently trades at $392.65 per share.

Palo Alto Networks may have had a good quarter, so should you invest 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 full report which you can read here, it's free.

One way how 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.