Palo Alto Networks Is an Opportunity

Palo Alto Networks (PANW) announced third quarter ended April 30, 2016 total revenue of $345.8 million, an increase of 48% percent year over year from $234.2 million during the same period last year and up 3.3 percent sequentially from $334.7 million in second quarter of 2016. Going forward, Palo Alto Networks has provided revenue guidance for fourth quarter of 2016 and estimates total revenue to be in $386 million to $390 million range, depicting 36% to 37% year-over-year growth as against fourth quarter of 2015.

Palo Alto Networks declared third quarter of 2016 net income of $38.5 million, or $0.42 per diluted share, up 88 percent year-over-year from $20.5 million or $0.23 per diluted share during third quarter of 2015.
The company estimates fourth quarter of 2016 non-GAAP EPS to be in $0.48 to $0.50 per share range.

The enterprise security platform provider reported continued sequential and year-over-year growths in both its top and bottom lines primarily driven by 61% year-over-year growth in quarterly billings to $486 million due to solid customer demand for the company’s exceptional services.

Impressive growth  

Palo Alto Networks is witnessing continued sequential and year-over-year growths in recurring services revenue with consolidated recurring revenue currently representing 53% of net revenue. This growth trend seems excellent for business expansion over the long-term because it develops robust cash flows coupled with higher leverage with time and superior revenue visibility.

The 61% year-over-year expansion in billings for the quarter to $486 million from $302.2 million in third quarter of 2015 despite continued macro volatility suggest notable strength of the company operations targeted towards delivering sustainable top line growth while offering attractive shareholder returns. The near-term and longer term deferred revenue expansion highlights the strength of the company’s hybrid SaaS model and allows greater visibility into its prospective revenue sources.

The industry-leading top line growth of Palo Alto Networks signifies notable customer traction for the company’s innovative set of enterprise security solutions which is believed to further deliver sustainable long-term company growth.

What’s working

The global network security expansion opportunity is huge and growing with total growth prospects for networking and security estimated to increase at a CAGR of 6.9% from $18.2 billion in 2016 to $22.1 billion in 2019. This comprises of $13.5 billion of network growth opportunity in 2016 believed to grow to $16.7 billion in 2019 and $4.7 billion of endpoint expansion opportunity in 2016 expected to increase to $5.4 billion in 2019. The broader adoption of Palo Alto Networks’ advanced security platform, mainly its subscription services is forecasted to continue to grow consumer lifetime value all through cohorts.

Palo Alto Networks is quickly and consistently solidifying its position as an enterprise security leader with over 31,000 active end-customers made globally till date. Some key competitive wins include, the complete platform of PALO ALTO NETWORKS running on the strategic PA-7050s and PA-7080s that includes Traps, AutoFocus and WildFire; a Sysco change at the world's biggest hosting companies for ensuring security compliance and protecting their infrastructure; implementing PA-7050s and PA-7080s; a multi-owned extra vendor employed at a US federal agency for securing their internet usage through PA-5060s; and an innovative win with key worldwide semiconductor organization where PALO ALTO NETWORKS substituted FireEye and Symantec for securing over 10,000 servers and workstations with Traps.

The notable global growth opportunity for PALO ALTO NETWORKS coupled with sustained expansion in customer count and ongoing wallet expansion is expected to significantly fuel the company’s top line growth while allowing it to deliver attractive shareholder returns.


Palo Alto Networks’ growth prospects are supported by a solid financial position with notable total cash of $1.09 billion against smaller total debt position of $502.80 million only, encouraging the company to make future growth investments while delivering attractive shareholder returns. However, the profit margin of -17.23% seems misguiding and signifies no profit but loss.
Published on Jun 24, 2016
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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