Palo Alto Networks (PANW, Financial) experienced flat trading after revealing its Q1 (Oct) results. The cybersecurity leader delivered a solid EPS beat, albeit not the usual double-digit margin. This marks the second time in three quarters that PANW has achieved a single-digit beat after a long streak of double-digit beats. Revenue increased by 13.9% year-over-year to $2.14 billion, aligning with expectations. The company also announced a 2-for-1 stock split, effective December 16.
- Q2 (Jan) EPS and revenue guidance were in-line, a slight letdown after strong guidance last quarter. NGS (Next-Generation Security) ARR grew 40% year-over-year to $4.5 billion, slightly below the 43% growth in Q4 (Jul). Historically, NGS ARR growth has been slowing as the company expands: 63%-60-56-53-50-47-43, now 40%.
- RPO (remaining performance obligation) increased 20% year-over-year to $12.6 billion, consistent with Q4 growth. However, this was a small sequential decline from Q4's $12.7 billion. Although not significant, it was somewhat disappointing. PANW noted that both metrics exceeded internal expectations. The company stopped reporting billings in Q1 due to changes in client payment preferences amid higher interest rates and the introduction of its platformization strategy, which increased billings volatility.
- PANW highlighted the strong and growing market for cybersecurity, outpacing overall technology market growth. Despite increased tech spending due to AI, cybersecurity continues to lead. The company saw robust performance in its next-generation security offerings, particularly Cortex and NetSec.
- PANW has long advocated for simplifying security architectures and consolidating products into platforms. The company regrets not implementing this change sooner. Recently, industry peers have begun endorsing platformization, which PANW views as flattering imitation.
- While competitors discuss platform approaches, PANW believes they lack the capability to deliver similarly. PANW anticipates the cybersecurity industry will consolidate around fewer platformization players in the next 5-10 years, positioning itself as a leader in this trend.
Overall, it was a decent quarter for PANW, though not as impressive as past quarters. Metrics were slightly soft but surpassed internal expectations. With the announcement of metric guidance, future comparisons will be clearer. The stock split is positive, though a 3-for-1 or 4-for-1 split might have been more appealing given the high stock price.
