Drill Down Earnings: A quick look at Palo Alto Networks ($PANW) and its Fiscal Q2 earnings report
Summary
TLDRThe video script provides an insightful analysis of Palo Alto Networks' latest earnings report, highlighting their slowing growth rate and challenges in selling individual cybersecurity fixes. As customers shift towards seeking holistic solutions and platform-based offerings, Palo Alto Networks is forced to re-evaluate its sales approach. The script delves into the company's conference call, where the CEO acknowledges the need for consolidation and platform plays, moving away from their traditional product-centric approach. The script also touches on the stock's steep after-hours decline, reflecting investors' concerns over Palo Alto Networks' ability to sustain its previous growth trajectory.
Takeaways
- 🔻 Palo Alto Networks reported fiscal Q2 2024 results with $2 billion in revenue, up 19% year-over-year, but growth has slowed from their typical 25% rate.
- ⚠️ The company provided weak guidance, projecting revenue growth as low as 16% for the next quarter, disappointing investors.
- 💰 Customers are scrutinizing their spending and seeking more comprehensive, platform-based solutions rather than individual fixes.
- 🔄 Palo Alto Networks needs to shift their go-to-market strategy towards consolidation and platform plays to meet customer demands.
- 📉 The stock plunged in after-hours trading, giving up all its gains for the calendar year 2024.
- 🗣 CEO Nish Arora acknowledged the need to adapt their sales approach and offerings to align with customer preferences.
- 📊 The company's billings growth, a key metric for future performance, has been decelerating over the past few quarters, reaching only 22.7% in Q2.
- 🕵️ Customers are taking a closer look at what they buy and how they buy it, leading to slower sales cycles and closure rates.
- 💼 Palo Alto Networks is reevaluating its product portfolio and sales tactics to better cater to the changing market dynamics.
- ⚡ The cybersecurity industry is evolving, and Palo Alto Networks needs to adapt quickly to maintain its competitive edge.
Q & A
What was the main financial performance of Palo Alto Networks in the reported quarter?
-Palo Alto Networks reported $1.98 billion in revenue for the second fiscal quarter ended January 2023, representing a 19% year-over-year growth. However, this growth rate was lower than the company's typical growth rate of around 25%.
What guidance did the company provide for future growth?
-Palo Alto Networks provided guidance indicating that their revenue growth rate could slow down to as low as 16% year-over-year at the high end of their guidance range for the upcoming quarter.
How did the market react to the company's earnings report?
-The stock market reacted negatively to Palo Alto Networks' earnings report. The company's stock price dropped significantly in after-hours trading, falling from around $370 to $290 per share, erasing all the gains it had made in the current calendar year.
What was the primary reason cited for the slowdown in growth?
-According to the company's CEO, Nikesh Arora, customers are taking a more holistic approach to their purchases and are no longer as eager to buy individual security solutions. Instead, they prefer to consolidate their purchases into platform deals and comprehensive solutions.
How is Palo Alto Networks planning to address this change in customer behavior?
-Palo Alto Networks is shifting their go-to-market strategy towards offering more platform deals and consolidation plays, rather than focusing on individual product sales. The company aims to provide more holistic solutions to meet customer demands.
What metric did the company highlight as an important indicator of future performance?
-The company emphasized that the Remaining Performance Obligations (RPO) metric, which reflects the underlying demand and book of business, is a key indicator to watch. However, the RPO growth rate of 22.7% was also slowing down, suggesting potential challenges ahead.
What was the stock price movement in after-hours trading?
-After the earnings report, Palo Alto Networks' stock price dropped significantly in after-hours trading, falling from around $370 to $290 per share, erasing all the gains the stock had made in the current calendar year.
How did the company's growth rate compare to its historical performance?
-The reported revenue growth rate of 19% was lower than Palo Alto Networks' typical growth rate of around 25%, indicating a slowdown in the company's growth trajectory.
What was the specific guidance provided by the company for the upcoming quarter?
-For the upcoming quarter, Palo Alto Networks provided guidance indicating that their revenue growth rate could slow down to as low as 16% year-over-year at the high end of their guidance range.
What was the key takeaway from the earnings report, according to the script?
-The key takeaway from the earnings report was that Palo Alto Networks' customers are no longer as eager to buy individual security solutions and are instead seeking more comprehensive platform deals and holistic solutions. This change in customer behavior is forcing the company to adapt its go-to-market strategy and product offerings.
Outlines
😮 Palo Alto Networks' Growth Slowdown and Customer Shift
The video discusses Palo Alto Networks' recent quarterly earnings report, where the company reported $1.98 billion in revenue, a 19% year-over-year growth, which is slower than their typical 25% growth rate. The guidance for future growth was even lower, with the top end of the range suggesting only 16% year-over-year growth. The CEO, Nesh Aurora, explained that customers are no longer as eager to purchase individual security solutions and are instead seeking more holistic platform deals and consolidated offerings. This shift in customer demand has led to slower sales cycles and close rates, impacting Palo Alto Networks' near-term sales performance. The stock price plummeted in after-hours trading, giving up all its gains from the current calendar year.
🔑 Palo Alto Networks' Billings Growth Slowing Down
The video highlights a key metric for Palo Alto Networks, their billings growth, which is the remaining performance obligations. This metric grew at only 22.7%, a decreasing rate over the last few quarters. This slower billings growth is considered a bad sign for the company's future performance, in line with the slowdown in sales and customer demand shift towards consolidated platform offerings instead of individual security solutions.
Mindmap
Keywords
💡Revenue growth
💡Guidance
💡Customer behavior
💡Cybersecurity
💡Platform deals
💡Remaining performance obligations (RPO)
💡Billings
💡Consolidation
💡Go-to-market strategy
💡Stock selloff
Highlights
Palo Alto Networks reported second fiscal quarter results that were okay but not as strong as expected, missing guidance.
Revenues were $1.98 billion, up 19% year-over-year, but growth has slowed from the previous 25% clip.
The guidance at the top end of the range showed only 16% year-over-year growth, indicating stagnating sales.
Customers are taking a real look at what Palo Alto Networks sells and how they sell it, leading to slower times to sell products, slower close rates, and less sales in the near term.
Customers are digesting spend from multiple vendors and questioning the need for individual fixes from Palo Alto Networks.
The stock dropped significantly in after-hours trading, giving up all the gains of the current calendar year.
Customers are no longer buying individual fixes and instead want a more holistic approach and platform deals.
Palo Alto Networks CEO Nir Zuk acknowledged the need to shift towards consolidation plays and platform offerings.
The company's remaining performance obligations (RPO) growth rate of 22.7% is falling each quarter, indicating a potential sign of trouble.
The big earnings takeaway is weak guidance, customers preferring holistic solutions over individual fixes, and the need for Palo Alto Networks to change its sales approach.
The shift towards consolidation and platform deals means slower growth for Palo Alto Networks in the near term.
Palo Alto Networks has had a strong stock performance over the past year, but the earnings report caused a significant drop in after-hours trading.
The company's underlying demand, book of business, and pipeline are strong, but the timing of deals is being pushed out due to the shift towards consolidation and platform offers.
Palo Alto Networks' customers are looking at individual fixes they've already bought from other vendors and questioning the need for additional fixes from Palo Alto Networks.
The company acknowledges the need to change its go-to-market strategy and focus on consolidation and platform plays instead of individual best-of-breed offerings.
Transcripts
they're taking a real look at what they
sell and how they sell it that's going
to mean slower times uh to sell products
slower close rates slower sales means
less sales in the near
[Music]
term right welcome to the drill down
earnings I've got the latest results
from poo Alto networks the business
story behind One stock on a move I'm
Cory Johnson the chief Market strategist
from futurum group palto networks
reporting second fiscal quarter a
quarter that ended at the end of January
the results were okay but maybe not what
the excited investors have learned to
look for Wall Street just likes a beat
or a miss this was kind of right in line
but the guidance was certainly a Miss
for this company we want to dig into the
business here go beyond the beat or the
Miss here's the business at the actual
numbers 1.98 billion hell let's just
call it two billion in revenues that was
up 19% from the previous year but this a
business that used to grow to 25% clip
so not great growth for this company the
guidance even worse guidance at the top
end of the range they gave us a range
they said at the top end only 16%
year-over-year so palow Alto Network
sales are
stagnating uh and they've been kind of
the growth has been kind of tailing off
a little bit but I think this is a real
surprise here from what we might have
expected from this company let's look a
little bit deeper beyond that what are
we seeing from their customers so in the
conference call the company told us that
their customers are just digesting the
spend from so many other things that
they're buying when palot networks
knocked on the door used to say hey we
got cyber security for you we can help
you from ransomware we can help you from
hacking great we'll buy it where do we
sign not so easy anymore they say their
customers are looking hey we bought this
thing from this guy we bought another
thing from another guy we've got a third
vendor coming in here selling us a third
thing why are we going to sign with
palot toet what are you getting us
exactly so the company nashor the CEO
saying they're taking a real look at
what they sell and how they sell it
that's going to mean slower times uh to
sell products slower close rates slower
sales means less sales in the near term
that rocked the stock let's look at the
charts when you look at the after hours
trading this stock going from 370 down
to
290 wow big drop in the after hours
really giving up all the gains of well
kind of just this year it's it's
incredible the stock has had such a run
over the last year over this current
calendar year so the stocks right about
back to where they started uh about
Christmas time giving up all the the 25%
% gains or so they've had for the
calendar year but again the problem is
their customers are looking at the
individual fixes that they used to buy
for you can fix my ransomware problem
I'll buy right now now they want a more
holistic approach and Nash Aurora the
CEO of Palo Network saying we got to
kind of go back to the draw drawing
board we're going to sell some platform
deals bigger platform fixes for lots of
stuff but these little fixes aren't uh
customers aren't buying it literally
here's NES Aurora on the comp conference
call that just ended if you noticed that
we have a higher win rate on platform
deals we have a higher win rate in
consolidation plays as opposed to best
bre head-ons which end up costing more
time and energy and you see very I
called it Rogue Behavior where people
start trying to desperately hold on to
customers so we are trying to shift our
go market towards a consolidation play
and platform play um I think as I said
to uh earlier the right number to look
at in this context is RPO the underlying
demand is strong our book of business is
strong our pipeline is strong uh there
is nothing going on on the demand side
it's just that we see this pushing out
of the buildings towards later Parts as
we get more and more consolidation
offers and platform offers out there so
consolidation platform not individual
fixes that means slower growth for
paloalto networks what's the big
earnings takeaway we'll have that and
the bite one number that tells us a
whole lot right after this the drill
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futurum group all right here's your
quick drill down earnings Takeaway on
paloalto network work's most recent
quarter second fiscal quarter for the
company that ended in January results
were okay $2 billion in sales but only
19% growth that might be a lot for some
companies not for these guys used to
grow 25% so weak guidance going forward
that the growth rates might be as low as
16% or Worse stock selling off big time
after hours customers telling them they
don't want individual fixes they want
Holistic Solutions platform sales Pala
change having to change what they sell
and how they sell it and you can see
that in the bite the drill down earnings
bite one number that tells us a whole
lot
22.7% that's their Billings the
remaining performance obligations
growing at only
22.7% kind of falling each of the last
few quarters not great for this company
and probably a bad sign for things to
come all right thanks for listening to
drillon earnings I'm Corey Johnson check
us out on all the socials drillon
earnings part of the 65 Media
Group
oh
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