Palo Alto Networks (PANW) Plunges on Revised Guidance
Shares of network security systems maker Palo Alto Networks (PANW) plunged last week, after the company issued a revenue forecast that missed Wall Street expectations. The Santa Barbara, California-based company stated that its fourth quarter revenue would come in between $106 million to $110 million, missing the consensus estimate of $113.7 million. This warning followed mixed third quarter earnings that disappointed analysts.
For its third quarter, Palo Alto reported a net loss of $0.10 per share, or $7.3 million, on revenue of $101.3 million - a 54% jump from the prior year quarter. However, Wall Street expected earnings of $0.05 per share on revenue of $103.46 million. Daily Chart
This is a major reversal for Palo Alto Networks, which has beat estimates ever since going public last July. The company blamed challenging economic conditions, government budget cuts and weakness in Europe for its top line declines. Europe accounts for 20%-25% of the company's revenue, while the U.S. government comprises roughly 10%. Yet Palo Alto Networks' warning shouldn't come as much of a surprise to investors who have been following the networking industry. Over the past two months, Aruba Networks (ARUN
), Juniper (JNPR
) and F5 Networks (FFIV
) all missed Wall Street estimates for the same reasons. The only standout company was market leader Cisco (CSCO
), which crushed its competitors by lowering its prices on bundled networking packages. Smaller competitors were unable to compete with Cisco's lower prices and tumbled as a result. However, Palo Alto Networks, co-founded in 2005 by former Check Point Software Technologies executive Nir Zuk, provides a niche technology of network security, which is a higher-margin business than traditional routers, switches or application delivery controllers. Palo Alto has been growing faster than its rivals, capitalizing on the growing need for fast-growing businesses to protect themselves from newer, more sophisticated hacking attacks. B. Riley & Co. analyst Daniel Cummins, who covers Palo Alto Networks, acknowledged the market's disappointment in the company. "To come in at the low end of the guidance range is kind of a recipe for a one-day disaster for the stock," he stated. However, Cummins remained bullish on the company, stating that he expects that the drop "won't be repeated." Palo Alto currently has over 12,500 customers using its platform. Shares of Palo Alto Networks currently trade with a forward P/E of 118.3 with a 5-year PEG ratio of 6.6, making it a fundamentally unattractive stock to own at current prices. The stock is currently down 9% since its market debut last July. It does not currently pay a dividend. Other News About PANW Palo Alto Networks Falls After Missing Sales Forecast
Palo Alto takes one on the chin after disappointing Wall Street. Palo Alto Networks Q3 Sales, Outlook Miss Targets
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Published on Jun 3, 2013
By Leo Sun