Palo Alto Networks delivered a strong quarter, but the stock plummeted after-hours on a slight billings miss and a disappointing reduction in its full-year outlook due to a shift in strategy. Revenue during the cybersecurity company’s fiscal 2024 second quarter increased 19% year-over-year to $1.98 billion, beating the consensus estimate of $1.97 billion that was compiled by LSEG, formerly known as Refinitiv. Adjusted earnings per share grew 39% to $1.46, ahead of estimates of $1.30. But total billings increased about 16% year-over-year to $2.35 billion, missing estimates of $2.36 billion and toward the low end of management’s expected range of $2.34 billion to $2.39 billion. Bottom line These results were not as clear-cut of a buy-the-selloff opportunity as we called the previous quarter when the stock dropped to the $240s. But they were not a complete thesis changer either. While the quarter was mostly fine with a nice beat on margins and cash flow, the issue was with billings for the second quarter in a row. Last time, we heard the billings cut was due to the high cost of money, which pushed customers into lower duration contracts and led to more financing. This time, we heard about weakness from a particular vertical in the immediate term and a strategy shift in the short term. In the immediate term, management cited softness in the U.S. federal government market. The company said it has several large projects in the pipeline but did not close. This trend started toward the end of the company’s fiscal first quarter, worsened in the second quarter, and it’s expected to continue into the second half of the fiscal year. In the short term, CEO Nikesh Arora spent a lot of time on the call discussing the acceleration of his “platformization” and consolidation strategies. “Customers have adopted platforms in other markets across technology,” Arora explained, using Salesforce, ServiceNow, and Workday as examples. “This will inevitably happen in cybersecurity,” he…
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