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Feb. 26, 2019, 5:30 p.m. EST

Palo Alto Networks stock rallies after big earnings beat, $1 billion buyback plan

CFO says Palo Alto Networks is ‘comfortable’ with consensus for second-half bookings

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By Wallace Witkowski, MarketWatch

MarketWatch photo illustration/Getty Images, Bloomberg
Nikesh Arora is chief executive of Palo Alto Networks Inc.

Palo Alto Networks Inc. shares rallied in the extended session Tuesday after the cybersecurity company reported a big earnings beat and plans to repurchase $1 billion in stock.

Palo Alto Networks /zigman2/quotes/207599953/composite PANW -2.88%  shares surged more than 11% after hours by the end of the conference call, following a 0.7% rise to close Tuesday’s regular session at $235.55. Shares closed up 25% for the year Tuesday, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.34%  is up 11.5% and the ETFMG Prime Cyber Security ETF /zigman2/quotes/207892345/composite HACK -1.84%  is up 18%.

/zigman2/quotes/207599953/composite PANW 226.69, -6.72, -2.88%

The company reported a fiscal second-quarter loss of $2.6 million, or 3 cents a share, compared with a loss of $25.6 million, or 28 cents a share, in the year-ago period. Adjusted earnings were $1.51 a share, while analysts surveyed by FactSet had forecast earnings of $1.22 a share. Revenue rose to $711.2 million from $545.6 million in the year-ago quarter while the Street expected $682.1 million.

Palo Alto Networks also announced its board authorized up to $1 billion in share repurchases, and introduced its Cortex AI-based security platform.

Don’t miss: Palo Alto Networks has transformed itself with more than $1 billion in acquisitions

On the conference call, Chief Financial Officer Kathy Bonanno said second-quarter billings rose 27% to $852.5 million, while Wall Street expected billings of $827.9 million.

“To help you model billings for the remainder of the year, we are comfortable with current consensus for the second half of the year,” Bonanno said. Analysts expect a consensus $1.88 billion in billing in the second half of the fiscal year.

For the third quarter, Palo Alto Networks expects adjusted earnings of $1.23 to $1.25 a share on revenue of $697 million to $707 million, while analysts had forecast $1.25 a share on revenue of $696.7 million. Bonanno said on the call that the company’s recently announced acquisition of Demisto for $560 million figures into the outlook with a charge of 5 cents a share.

Demisto is a so-called SOAR — or security orchestration, automation and response — company that uses machine learning to aid in automating cybersecurity functions, and is the fifth announced acquisition in the past 12 months for the company.

Cybersecurity customers are overwhelmed with having to deal with scores of different security vendors to meet their specific security needs and corporate decision makers want a more centralized approach, namely, one vendor that can serve most of their needs.

“I think when we went out to our customers, the customers’ big challenge is there are so many cybersecurity solutions,” Palo Alto Chief Executive Nikesh Arora said on the call.

Customers say they are getting three to 10 times as many cybersecurity alerts than they were five years ago, and that they have to hire more people to analyze the alerts, Arora said.

“Well, we realized that there is a crescendo where people are saying, ‘I need more help solving this alert,’” Arora said. “I think Demisto fits squarely in that ‘sore’ spot in the industry, no pun intended.”

$ 226.69
-6.72 -2.88%
Volume: 3.11M
June 4, 2020 4:00p
P/E Ratio
Dividend Yield
Market Cap
$21.87 billion
Rev. per Employee
-10.52 -0.34%
Volume: 3.74B
June 4, 2020 5:10p
US : U.S.: NYSE Arca
$ 44.69
-0.84 -1.84%
Volume: 153,596
June 4, 2020 4:00p

Wallace Witkowski is a MarketWatch news editor in San Francisco. Follow him on Twitter @wmwitkowski.

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