Palo Alto Networks: Stay Invested for More Returns

Palo Alto Networks (PANW) announced first quarter of fiscal year 2016 ended October 31, 2015 total revenue of $297 million, up 4.7 percent sequentially from $284 million in fourth quarter of last fiscal year and increased 55 percent year-over-year from $192 million in first quarter of fiscal year 2015. The company has also provided revenue guidance for second quarter of fiscal 2016 and estimates total revenue in the range of $314 million to $318 million, depicting 44% to 46% year-over-year expansion.

Impressive growth

Palo Alto declared first quarter of fiscal year 2016 net income of $31.6 million or $0.35 per diluted share, up 147 percent year-over-year from $12.8 million or $0.15 per diluted share during the same period last year.
Going forward, non-GAAP EPS for second quarter of fiscal 2016 is forecasted to be in the range of $0.38 to $0.39 per diluted share.

The key enterprise security provider reported continued sequential and year-over-year growths in both its top and bottom line primarily due to the rising customer traction for each of the three components of the company’s innovative hybrid SaaS model viz. subscriptions, product and support.

Palo Alto is illustrating solid year-over-year top line growth which is expanding at a CAGR of 127% and exceeding the growths of market and whole industry, primarily driven by a notable 61% year-over-year billings growth to approximately $388 million.

Focus on key areas

All the three parts of its hybrid SaaS model including, subscriptions, product and support expanded significantly during the first quarter with product revenue for the quarter increasing 46% to $147.7 million compared to last year. PANW declared 65% year-over-year growth in recurring services revenue to $149.5 million, and depicting half of net revenue. The two components of recurring services revenue including, SaaS-based subscription revenue and Support and maintenance revenue each grew 69% and 61% respectively over last year to $73.6 million and $75.9 million respectively.

The notably rising customer traction for the company’s innovative set of security products and services is believed to drive sustainable long-term growth for Palo Alto and thus, deliver year-over-year increasing shareholder returns.

During the first quarter of fiscal year 2016, billings revenue grew 61 percent year-over-year to $388 million and net deferred revenue increased 13% sequentially and 71% year-over-year to $804.5 million and highlighting the strength of the company’s hybrid SaaS model, coupled with depicting improving visibility into prospective revenue streams.

Pan Alto’s superior hybrid model is delivering significant year-over-year expanding free cash flows with first quarter of fiscal year 2016 free cash flow of $127.2 million with an attractive 42.8% of free cash flow margin. Further, the company’s adjusted operating margin expanded 610 basis points year-over-year to approximately 16.7%.

The significantly expanding overall top line growth for the company along with impressive billings and total deferred revenue growths are the key reasons allowing Palo Alto to expand its year-over-year free cash flows and their margins.

Land is primarily fueling the growth engine with the company having recorded over 28,000 end-customers with an increasingly robust industry-leading position for enterprise security.

Palo Alto recently declared a strategic partnership with Proofpoint to jointly leverage Proofpoint SocialPatrol, Proofpoint Targeted Attack Protection (TAP) and Palo Alto Networks Next-Generation Security Platform to enable customers to prevent and avoid the latest identified and unidentified threats prior they infiltrate systems and steal confidential information.

The planned networking security contracts with other major security companies is expected to notably expand the products and services portfolio of PANW, driving enhanced customer traction for its innovative technology solutions.

Conclusion

Investors are advised to “Hold” their position in Palo Alto Networks, Inc. considering notable growth prospects of the company and weak profit margin of -16.80%, indicating no profit but loss. The PEG ratio of 1.44 signifies slow company growth but, marginally better than the industry’s growth average of 0.89. However, Palo Alto has a robust financial position with significant total cash of $761.30 million against weaker total debt position of $492.30 million, encouraging the company to make future growth investments.
Published on Feb 15, 2016
By Yaggyaseni Mittra

Copyrighted 2016. Content published with author's permission.

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