Why Palo Alto Networks Is Sinking Despite Mixed Earnings

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Palo Alto Networks, Inc. (NYSE: PANW) released its fiscal first-quarter earnings report after the markets closed on Monday. Although the financial results were close to estimates, in fact beating on the bottom line, Palo Alto still suffered this quarter. Compared to Monday’s closing price the stock trades near 57-times expected fiscal 2017 earnings, which could offer some explanation as to why investors seem so shaken on mixed earnings.

The company posted $0.55 in earnings per share (EPS) and $398.1 million in revenue. Consensus estimates from Thomson Reuters called for $0.53 in EPS and $400.2 million in revenue. The same period from last year called for $0.35 in EPS and $297.2 million in revenue.

Subscription and support revenues rose by 57% this quarter year over year to a total of $234.4 million. SaaS-based subscription revenues increased 65% in the same time and support revenues were up 49%.

During this quarter, Pat McCarthy joined the board of directors and audit committee and brings more than 34 years of experience in financial and accounting matters. Ms. McCarthy has served in numerous senior leadership positions at KPMG LLP, most recently as vice chair, and on various other boards and audit committees.

In terms of the outlook for the fiscal second quarter, the company expects to have EPS in the range of $0.61 to $0.63 and revenue in the range of $426 million to $432 million. The consensus estimates from Thomson Reuters are calling for $0.63 in EPS and $438.88 million in revenue.

Steffan Tomlinson, CFO of Palo Alto Networks, commented:

In the first quarter fiscal 2017, we added well over 1,500 new customers and saw broad adoption of our Next-Generation Security Platform by our existing customer base. We are now privileged to serve more than 35,500 customers worldwide. The power of our hybrid-SaaS model was also evident as we continued to grow multiples of our total addressable market at scale, resulting in record quarterly deferred revenue, cash flow from operations of $203.3 million, and free cash flow of $182.4 million.

On the books, cash, cash equivalents, and short-term investments totaled $1.39 billion at the end of the quarter, versus $1.29 billion at the end of the previous fiscal year.

Shares of Palo Alto Networks closed Monday at $161.06, with a consensus analyst price target of $180.89 and a 52-week trading range of $111.09 to $194.73. Following the release of the earnings report, the stock was down 11% at $143.15 in early trading indications on Tuesday.