Palo Alto Networks PANW reported third-quarter fiscal 2020 non-GAAP earnings of $1.17 per share, which surpassed the Zacks Consensus Estimate by 28.6%. However, the bottom line declined 10.7% year over year.
The company’s revenues of $869.4 million improved 20% year over year. Moreover, the figure beat the Zacks Consensus Estimate of $829 million.
The top line was primarily driven by several deal wins and increasing adoption of the company’s next-generation security platforms, attributable to the rise in remote work environment and need for stronger security. Growing traction in Prisma and Cortex offerings also acted as a tailwind.
However, revenues were affected by the negative impact of sales incentives related to Next-Generation Security products, which continued from the prior fiscal year.
Palo Alto Networks, Inc. Price, Consensus and EPS Surprise
Palo Alto Networks, Inc. price-consensus-eps-surprise-chart | Palo Alto Networks, Inc. Quote
Product revenues grew approximately 1% to $280.9 million.
The company’s subscription and support revenues improved 31% to $588.5 million, driven by a 37% increase in SaaS-based subscription revenues and 24% rise in support revenues. This segment of Palo Alto’s business constituted 68% of total revenues in the fiscal third quarter.
Further, billings improved 24% year over year to $1.02 billion. Deferred revenues rose 28% to $3.4 billion.
During the reported quarter, Palo Alto continued to acquire new customers — adding more than 2,500 customers— and increase wallet share with existing customers.
Region wise, revenues from the Americas climbed 19% while Europe, the Middle East and Africa, and Asia Pacific revenues rose 24% and 15%, respectively.
Additionally, Palo Alto’s gross margin contracted 130 basis points (bps) on a year-over-year basis to 75.2%.
Non-GAAP operating margin contracted 450 bps to 16.4% due to a headwind of about $3 million in net expenses related to the recent acquisition.
Palo Alto exited the fiscal third quarter with cash, cash equivalents and short-term investments of approximately $2.2 billion compared with $3.5 billion at the end of the preceding quarter.
The company’s balance sheet does not have any long-term debt.
It generated cash flow from operations of $169.9 million compared with $306.9 million in the previous quarter. Free cash flow came in at $83.6 million.
For fourth-quarter fiscal 2020, Palo Alto anticipates revenue growth of 14-15% year over year between $915 million and $925 million. Billings growth is anticipated between 13% and 14%, ($1.19 billion-$1.21 billion).
Non-GAAP earnings per share are estimated in the range of $1.37-$1.40, taking into account approximately $8 million of net expenses related to the acquisition of CloudGenix.
For fiscal 2020, the company estimates billings to grow approximately 18% year over year.
Revenues for the fiscal year are estimated between $3.37 billion and $3.38 billion, suggesting an improvement of 16-17% year over year.
Non-GAAP earnings per share are estimated in the band of $4.78-$4.81.
Zacks Rank & Stocks to Consider
Palo Alto currently carries a Zacks Rank #3 (Hold).
Coupa Software COUP, Workday WDAY and Okta OKTA are some better-ranked stocks in the broader computer and technology sector. All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Workday, Okta and Coupa Software are set to report quarterly results on May 27, May 28 and Jun 8, respectively.
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