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https://www.barrons.com/articles/stock-market-movers-cd3606a2
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Palo Alto Networks Inc. shares rallied Friday after hours as the cybersecurity company topped expectations with its latest earnings, as well as with its forecasts for profit and billings, outlining that new reporting rules and AI-backed adversaries are driving adoption.
The stock
PANW,
was rallying more than 9% in the extended session, following a 1% gain in the regular session to close at $209.69.
Palo Alto Networks forecast first-quarter adjusted earnings of $1.15 to $1.17 a share on revenue of $1.82 billion to $1.85 billion and billings of $2.05 billion to $2.08 billion. Analysts were estimating $1.11 a share on revenue of $1.93 billion and billings of $2.04 billion for the first quarter.
For the year, the company expects $5.27 to $5.40 a share on revenue of $8.15 billion to $8.2 billion on billings of $10.9 billion to $11 billion. Analysts tracked by FactSet had been projecting $4.98 a share on revenue of $8.38 billion and billings of $10.81 billion for the year.
The company defines billings as “total revenue plus the change in total deferred revenue, net of acquired deferred revenue, during the period,” and is a metric used to account for subscriptions.
On the extended call with analysts, Nikesh Arora, the company’s chairman and chief executive, said that while strong fourth-quarter results did not come as a surprise, what did come as a surprise was the speed of adoption of its Cortex XSIAM AI-driven security platform, especially now that regulators are going to start requiring quick disclosures for material cyberattacks.
Palo Alto Networks reported fiscal fourth-quarter net income of $227.7 million, or 64 cents a share, compared with $3.3 million, or a penny a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expenses and other items, were $1.44 a share, compared with 80 cents a share in the year-ago period.
Revenue rose to $1.95 billion from $1.55 billion in the year-ago quarter, while billings rose 18% to $3.2 billion. Analysts surveyed by FactSet had forecast $1.29 a share in adjusted earnings on revenue of $1.96 billion and billings of $3.18 billion.
The company launched XSIAM in October, and set a goal of booking more than $100 million in the first year. Arora said that in less than a year, XSIAM has already brought in $200 million, indicating that interest in applying AI to enhance security is “very high.”
In late July, the Securities and Exchange Commission adopted new rules requiring companies to disclose cyberattacks within four days of making the determination the intrusion has a material effect on results.
“Our customers have told us loud and clear that the legacy products powering their stacks are no longer working and they need to reduce by an order of magnitude,” Arora told analysts. “This becomes increasingly important with the new SEC rules detailing that all public companies will be required to report material breaches within four business days.”
On the call, Lee Klarich, Palo Alto Networks chief product officer, told analysts that it wasn’t long ago that the average time between an initial hack and stealing data was about 44 days. Now, that can happen in a matter of hours, which is a huge problem, Klarich said, noting that attackers are adopting AI to perform attacks.
“On average the industry is able to respond and remediate attacks in about six days: That doesn’t work,” Klarich said. “And even more challenging now with the SEC new rules of being able to disclose within four days, none of the math adds up.”
Five years ago, Palo Alto Networks was already in the middle of an M&A spree to transform itself from a firewall company to a multiproduct security platform, and showed no signs of slowing down until August 2021, when the company decided to report earnings without announcing an M&A deal, after having acquired 14 companies over the previous three-and-a-half years.
Nvidia Corp.
NVDA,
which also has a huge stake in AI, reports results after the bell on Wednesday.
Palo Alto Networks is a new entrant to the S&P 500 index
SPX,
having gotten the nod in June. As of Friday’s close, Palo Alto Networks shares have gained 50.3% year to date, compared with a 12.4% gain on the ETFMG Prime Cyber Security exchange-traded fund
HACK,
a 13.8 % gain on the S&P 500, and a 27% rise on the tech-heavy Nasdaq Composite
COMP.
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Home Depot, Target, Cisco, Deere, Walmart, and More Stocks to Watch This Week
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CrowdStrike Holdings Inc. shares dropped in the extended session Tuesday after the cybersecurity company said new subscriptions came in below expectations amid macro headwinds and longer customer buying cycles.
Given concern that businesses are cutting back on spending, CrowdStrike
CRWD,
shares plummeted nearly 20% after hours, following a 1% decline in the regular session to close at $138.
George Kurtz, CrowdStrike’s co-founder and chief executive, told analysts on a conference call that the company reported $198.1 million in net new annual recurring revenue, or ARR, in the quarter, not as much as it had hoped.
ARR is a software-as-a-service metric that shows how much revenue the company can expect based on subscriptions. That grew 54% to $2.34 billion from the year-ago quarter, while the Street expected $2.35 billion. Kurtz said that about $10 million was deferred to future quarters.
“We expect these macro headwinds to persist through Q4,” Kurtz told analysts.
Burt Podbere, CrowdStrike’s chief financial officer, explained that the company relies on ARR because it’s “an X-ray into the contract sales.”
“As George mentioned, even though we entered Q2 with a record pipeline, and we are expecting the elongated sales cycles due to macro concerns to continue, we’re not expecting to see the typical Q4 budget flush given the increased scrutiny on budgets.”
Podbere said it is “prudent to assume” fourth-quarter net new ARR will be up to 10% below the third quarter’s. That would mean about a 10% year-over-year headwind going into the first half of next year, and “full-year net new ARR would be roughly flat to modestly up year over year.”
“This would imply a low 30s ending ARR growth rate and a subscription revenue growth rate in the low to mid-30s for FY 2024,” Podbere said.
Read: Cloud software is suffering a cold November rain. Can Snowflake and Salesforce turn things around?
The company expects adjusted fiscal fourth-quarter earnings of 42 cents to 45 cents a share on revenue of $619.1 million to $628.2 million, while analysts surveyed by FactSet forecast earnings of 34 cents a share on revenue of $633.9 million, according to analysts.
CrowdStrike expects full-year earnings of $1.49 to $1.52 a share on revenue of $2.22 billion to $2.23 billion. Wall Street expects $1.33 a share on revenue of $2.23 billion.
The company reported a fiscal third-quarter loss of $55 million, or 24 cents a share, compared with a loss of $50.5 million, or 22 cents a share, in the year-ago period. Adjusted net income, which excludes stock-based compensation and other items, was 40 cents a share, compared with 17 cents a share in the year-ago period.
Revenue rose to $580.9 million from $380.1 million in the year-ago quarter.
Analysts expected CrowdStrike to report earnings of 28 cents a share on revenue of $516 million, based on the company’s outlook of 30 cents to 32 cents a share on revenue of $569.1 million to $575.9 million.
So far in November, cloud software stocks have been getting trashed. While the S&P 500
SPX,
has gained 2%, and the tech-heavy Nasdaq Composite
COMP,
is flat, the iShares Expanded Tech-Software Sector ETF
IGV,
has fallen more than 2%, the Global X Cloud Computing ETF
CLOU,
has declined more than 4%, the First Trust Cloud Computing ETF
SKYY,
has fallen more than 6%, and the WisdomTree Cloud Computing Fund
WCLD,
has dropped more than 11%.
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