Palo Alto Networks (PANW, Financial) saw a decline of 3% after reporting its Q3 (April) results. The cybersecurity giant reported an EPS beat, but the upside was smaller than usual, with just a $0.07 beat. Revenue increased by 15.3% year-over-year to $1.98 billion, meeting analyst expectations. Despite recent guidance downgrades, PANW's in-line guidance was considered decent.
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By geography:
- Americas grew 15% in Q3
- EMEA increased by 20%
- JPAC rose by 8%, driven by higher subscription bookings offsetting lower product bookings.
- Market dynamics: Cyberattacks continue unabated, with AI expected to increase the pace of attacks. PANW anticipates no changes in cybersecurity spending, as most customers have ongoing projects limited only by execution capability.
- Platformization: PANW believes that platformization is the key to addressing security threats. Despite investor concerns, customer feedback has been positive, indicating robust demand expected to continue for several quarters.
- Billings: The stock sold off last quarter when PANW lowered FY24 bookings guidance. Q3 billings were within the guidance range, but PANW is focusing less on this metric. The company notes that RPO mainly comprises contracts with ratable revenue, while billings are influenced by invoicing terms, adding volatility. PANW does not see billings as a true indicator of business trends.
- Partnership with IBM: PANW's partnership with IBM involves migrating IBM's QRadar customers to XSIAM. IBM will deliver industry-specific capabilities using Watson X and enable over 1,000 IBM security consultants on the entire Palo Alto Networks portfolio, accelerating platformization. PANW will be IBM's preferred cybersecurity partner across network, Cloud, and SOC.
Overall, investors were disappointed with the small EPS upside and expected better billings guidance for Q4 (July). However, management's positive tone on the call, addressing spending fatigue and platformization concerns, helped the stock recover from its lows. It was a decent report overall.
