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Palo Alto Networks in Three Words: Pureplay Cybersecurity Leader
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Background
Palo Alto Networks is a prominent American cybersecurity company primarily known for its advanced firewalls and cloud-based security solutions, offering a comprehensive platform to protect networks from various cyber threats across different environments.
Palo Alto Networks has taken a platform approach to cybersecurity, offering a broad suite of products covering network security, cloud security, and security operations. This strategy caters to a wide range of clients, from small businesses to large enterprises, providing diverse revenue streams.
The company’s focus on platformization aims to tackle the increasing complexity of cybersecurity environments and provide comprehensive protection across various potential attack points. However, success hinges on their ability to demonstrate the value of an integrated platform and encourage customers to adopt the full suite of products.
Palo Alto Networks has shown impressive financial growth, with next-generation security Annual Recurring Revenue (ARR) of $3.79 billion (+47% YoY).
While this growth is strong, to some extent it may be influenced by customers upgrading from legacy systems, so long-term growth should be expected to align with the overall revenue growth (currently 15% annually).
Conviction Rating Changes
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Recent Company Updates
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February 19, 2025:
Palo Alto Networks released solid Q2 2025 Results and then raised its full-year guidance for both operating margin and earnings per share.
- Fiscal second quarter revenue grew 14% year over year to $2.3 billion.
- Next-Generation Security ARR grew 37% year over year to $4.8 billion.
- Remaining performance obligation grew 21% year over year to $13.0 billion.
- GAAP net income for the fiscal second quarter 2025 was $0.3 billion, or $0.38 per diluted share, compared with GAAP net income of $1.7 billion, or $2.44 per diluted share, for the fiscal second quarter 2024. GAAP net income for the fiscal second quarter 2024 included a $1.5 billion net tax benefit from a release of the company's valuation allowance.
"In Q2, our strong business performance was fueled by customers adopting technology driven by the imperative of AI, including cloud investment and infrastructure modernization," said Nikesh Arora, chairman and CEO of Palo Alto Networks. "Our growth across regions and demand for our platforms demonstrate our customers' confidence in our approach. It reaffirms our faith in our 2030 plans and our $15 billion NGS ARR goal."
"Platformization drove our Q2 results, including strength in NGS ARR and RPO," said Dipak Golechha, chief financial officer of Palo Alto Networks. "As we drive leverage from our scale and see early benefits from AI-related efficiency initiatives, we again delivered profitable growth. We expect this will continue and, as a result, we are raising operating margins and EPS for the year."
For the fiscal year 2025, they expect:
- Next-Generation Security ARR of $5.52 billion to $5.57 billion, representing year-over-year growth of between 31% and 32%.
- Remaining performance obligation of $15.2 billion to $15.3 billion, representing year-over-year growth of between 19% and 20%.
- Total revenue in the range of $9.14 billion to $9.19 billion, representing year-over-year growth of 14%.
- Non-GAAP operating margin in the range of 28.0% to 28.5%.
- Diluted non-GAAP net income per share in the range of $3.18 to $3.24, using 700 million to 708 million shares outstanding.
- Adjusted free cash flow margin in the range of 37% to 38%.