Palo Alto Networks, Inc.
CEO : Mr. Nikesh Arora C.F.A.
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2023 Q2 | 25.7% YoY | -154.0% | -188.2% | 2023-02-21 |
Nikesh Arora says,
Financial Performance
- Billings and revenue grew 26% YoY
- Non-GAAP operating income grew 55% YoY, with a non-GAAP operating margin exceeding 22%
- Cumulative GAAP profitability for the last four quarters
- Guidance raised for top-line metrics and profitability
Market Environment
- Tougher macro environment emerging as the Fed aims to tame inflation
- Some customers experiencing signs of a slight slowdown
- Customers demanding more value from partners
- Caution driving more scrutiny and creating conversations around payment terms, discounts, and scope of deals
Consolidation and Transformation
- Consolidation a key theme with customers
- Number of deals closed over $1 million grew nearly 20% YoY, and the value of these transactions grew nearly 60%
- Customers on a long-term transformation path with the company
- Driving consolidation with Zero Trust transformations, cloud transformations, and SOC transformations
Investment in Innovation
- Approximately $1 billion in non-GAAP spending on R&D, the largest budget of all dedicated cybersecurity companies
- A record number of product releases with 35 in the first half of the year, up 59% YoY
- 13 active leadership recognitions, up from 9 a year ago
- NGS ARR growth at 63%
Network Security Business
- Booked about $1 billion in the last six quarters with over 4,000 customers and growing ARR approximately 50%
- Five-year revenue from a SASE customer more than 2.5 times that of an appliance customer
- Improving economics in the business with some improvements in SASE gross margins
- Software firewall business going strong with the highest market share
Dipak Golechha says,
Financial Highlights
- Q2 revenue grew by 26% to $1.66 billion
- Total deferred revenue in Q2 was $7.6 billion, an increase of 39%
- Non-GAAP EPS of $1.05 grew 81% year-over-year
- Non-GAAP gross margin of 75.5% was up 150 basis points year-over-year
- Operating margin of 22.8% increased 440 basis points year-over-year
Guidance
- For Q3, billings expected to be in the range of $2.20 billion to $2.25 billion, revenue in the range of $1.695 billion to $1.725 billion, and non-GAAP EPS in the range of $0.90 to $0.94
- For Q4, billings expected to be in the range of $3.12 billion to $3.17 billion, revenue in the range of $1.937 billion to $1.967 billion, and non-GAAP EPS in the range of $1.18 to $1.22
- For fiscal year 2023, billings expected to be in the range of $9.1 billion to $9.2 billion, NGS ARR in the range of $2.75 billion to $2.8 billion, and non-GAAP EPS in the range of $3.97 to $4.03
Non-GAAP Effective Tax Rate
- Non-GAAP effective tax rate was 22% for Q2, Q3, and fiscal year 2023
- Subject to the outcome of future tax legislation
Capital Expenditures
- Q3 capital expenditures of $35 million to $40 million, with full year capital expenditures of $165 million to $170 million
Q & A sessions,
SASE Market
- The pandemic and the cloud transformations have led to a significant increase in the SASE market.
- Customers, especially larger ones, want to create a first-class citizen of any user who is not on the premises and want to get to zero trust.
- Palo Alto Networks has 60-plus thousand customers who use their firewalls and are now showing them a path to migrate from a firewall-based architecture to a zero-trust architecture that spans hardware, software, remote access, and campus solutions.
- These factors have created a real spurt in the SASE market for Palo Alto Networks.
Hardware vs. Software
- Hardware and software growth are not mutually exclusive.
- Subscription and ELA growth are driven by the fact that customers have hardware, which they are extending the software capabilities on and buying more software capabilities from Palo Alto Networks.
- Palo Alto Networks’ success in software is not hardware-dependent.
XDR and XSIAM
- XDR and XSIAM are both integral parts of Palo Alto Networks’ strategy.
- Palo Alto Networks is one of the three growing XDR vendors where customers are choosing them.
- XDR is a pipeline business, while cloud and SASE can be bigger deals.
- While Palo Alto Networks is consistently building its XDR customer base, XSIAM only works with XDR, and the company is seeing its early customers pull for this outcome-based solution.
Operating Margin and Profitable Growth
- Palo Alto Networks is focusing on profitable growth.
- The company is running a sustained program that looks at gross margin across all products, spend across categories, and headcount.
- Palo Alto Networks believes it can keep improving its operating margin from the guidance given for the full year.
SASE Stack
- SASE is not just about security, it also involves running a network.
- Palo Alto Networks’ SASE stack runs concurrently on GCP and AWS, allowing them to give higher availability.
- Though the company is relatively new to SASE, they intend to keep building the necessary features and capabilities to stay ahead of the market.
No bad stock 