Palo Alto Networks Offers Upbeat Forecast, Boosts Buybacks

(Bloomberg) — Palo Alto Networks Inc . rose after it issued a quarterly profit forecast that beat Wall Street expectations and boosted its share buyback program.

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Shares rose as much as 5 percent in after-market trading in New York. The cyber security provider was up 16% through the month’s close.

Earnings for the current fiscal quarter will be $1.47 per share to $1.49 per share, the company said in a statement. Analysts were expecting $1.43.

The company has been trying to refresh its sales strategy with limited success, Bloomberg Intelligence said before the report. Despite the strategic shift, Palo Alto managed to grow its sales by 12% in the last quarter, faster than expected.

Reported full-year sales of just over $8 billion were in line with consensus expectations, which were moderated after it cut its outlook earlier this year.

Wall Street remained broadly bullish on shares of the Santa Clara, Calif.-based company ahead of Monday’s earnings, which had 40 buys, 15 holds and zero sell ratings among analysts tracked by Bloomberg.

Palo Alto’s also announced that its board approved an additional $500 million in share repurchases, bringing the total authorization to $1 billion.

The results come as a boon for Palo Alto, one of America’s top cybersecurity companies, which has a market capitalization of $111 billion, up from $91 billion at the start of the year. Chief Executive Nikesh Arora warned back in February that customers were suffering from “spend fatigue” in cybersecurity as the company missed Wall Street expectations for annual sales, sending the company’s value down a record 27% at the time.

Analysts have been watching for any impact on the cybersecurity market from last month’s mass outages triggered by a botched update from CrowdStrike Holdings Inc. This includes whether CrowdStrike customers were switching to rivals or pushing cybersecurity vendors in general.

Arora said in a call to investors on Monday that the company was “delighted” with its results, adding that cybersecurity has risen on the agenda in C-suites after “a recent broad disruption involving security tools.”

Palo Alto creates its own updates in a “fundamentally different way” than CrowdStrike, Arora said. Since the outage, customers have reached out and asked how Palo Alto is implementing its updates compared to its rival, he said.

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Dipak Golechha, chief financial officer, said the company would no longer issue billing forecast guidance to investors in the future. This follows Arora’s claim in May that the bills were an “artificial measure” after the figure missed analysts’ estimates and disappointed investors.

Golechha said the company would instead issue guidance for annual recurring revenue for a portion of its product offering and remaining performance obligations, known for short as RPOs, a measure of how much revenue is already contracted.

Wall Street firms such as Guggenheim Securities have previously warned of the pitfalls associated with relying on RPOs. In November 2022, Guggenheim claimed that the RPO lacked crucial information, such as the time frame in which contracted revenues would be spent.

(Updates with comments starting in the 11th paragraph.)

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