Palo Alto Networks (NYSE:PANW) Surprises With Q1 Sales

Kayode Omotosho 2021/11/18 4:26 pm EST

Cybersecurity provider Palo Alto Networks (NYSE:PANW) reported strong growth in the Q1 FY2022 earnings announcement, with revenue up 31.8% year on year to $1.24 billion. The company expects that next quarter's revenue would be around $1.27 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 $103.6 million, down on its loss of $92.2 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) Q1 FY2022 Highlights:

  • Revenue: $1.24 billion vs analyst estimates of $1.2 billion (3.58% beat)
  • EPS (non-GAAP): $1.64 vs analyst estimates of $1.57 (4.5% beat)
  • Revenue guidance for Q2 2022 is $1.27 billion at the midpoint, roughly in line with what analysts were expecting
  • The company lifted revenue guidance for the full year, from $5.3 billion to $5.37 billion at the midpoint, a 1.41% increase
  • Gross Margin (GAAP): 69.4%, down from 70.6% same quarter last year

"The combination of strong top-line metrics, upside to our profitability goals, and cash conversion for Q1 showcase our focus on total shareholder return," said Dipak Golechha, chief financial officer 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 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 $946 million, to $1.24 billion.

Palo Alto Networks Total Revenue

This was a standout quarter for Palo Alto Networks, with the quarterly revenue up 31.8% year on year, which is above average for the company. But the growth did slow down compared to last quarter, as the revenue increased by just $28.1 million in Q1, compared to $145.4 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 22.4% over the next twelve months, although estimates are likely to change post earnings.

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, licenses, technical support and other necessary running expenses was at 69.4% in Q1.

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 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 Q1 Results

With a market capitalization of $50.3 billion, more than $3.46 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in 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. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. But investors might have been expecting more and the company is down 1.33% on the results and currently trades at $513.08 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.