Palo Alto Networks (PANW) Q3 Earnings: What to Expect


Estimates suggest that cybercrime is forecasted to grow at 15% per year over the next five years, costing the world some $10.5 trillion annually by 2025. And close to 70% of businesses surveyed predict spending on cybersecurity will be a major component of their IT budgets in 2022.

These trends bode well for Palo Alto Networks (PANW), which continues to benefit from its leadership position in seven key cybersecurity categories. But despite its operating success, including eight straight quarters of top- and bottom-line beats, Palo Alto stock has fallen more than 16% year to date, including a 25% fall over the past month. The market has been unforgiving during the recent selloff in high tech stock. But now might be a good time to buy?

The cybersecurity giant is set to report third quarter fiscal 2022 earnings results after the closing bell Thursday. The stock has declined even though the company has consistently outperformed the overall cybersecurity industry when it comes to growing revenues and profits. When assessing Palo Alto’s growth profile, the company has arguably best-of-breed products and services compared to its competitors with projected earnings growth rate of 27.5% annually over the next five years.

Currently worth $200 billion, the cybersecurity market is projected to grow to approximately a 10% compound annual growth rate within the decade. Palo Alto is expected to seize a sizable portion of the market as companies work to combat not only rising hacker sophistication, but also implement defenses needed to support their digital expansion. Nevertheless, the question on Thursday will be whether Palo Alto can get investors (and analysts) excited about its stock amid the current bear market?

For the three months that ended April, Wall Street expects the California-based company to earn $1.68 per share on revenue of $1.36 billion. This compares to the year-ago quarter when earnings came to $1.38 per share on revenue of $1.07 billion. For the full year, ending August, earnings are projected to increase 20% year over year to $7.29 per share, while full-year revenue of $5.46 billion would rise 28.6% year over year.

The projected full-year revenue growth total, if achieved, would mark a slight growth deceleration of three percentage points on a year-over-year basis. But the fact that full-year revenue is still growing at close to 30% annually underscores the strength in Palo Alto’s cloud business. Analysts believe that the cloud security segment is still in the early stages and is poised to rise as more employees work remotely, relying more on Palo Alto’s cloud cyber-prevention and firewall tools to protect their endpoints.

Meanwhile, in terms of execution, Palo Alto has delivered thirteen straight top- and bottom-line beats, including in the second quarter when it easily surpassed Street estimates. In Q2 Palo Alto earned an adjusted $1.74 per share on $1.3 billion, topping consensus of $1.65 per share on $1.28 billion in revenue. The Q2 revenue growth rate of 30% was much faster than the 10% growth rate of the overall Cybersecurity industry. Just as impressive, Q2 billings rose 32% to $1.6 billion, with remaining performance obligations growing 36% year-over-year to $6.3 billion.

Billings is a closely-watched metric that indicates the strength of future revenue that’s yet to be recognized. Investors on Thursday will nonetheless want to see whether these strong growth trends can continue. With PANW stock trading at roughly six time forward revenue, there’s still value to be realized if Palo Alto can affirm its strong market position.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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