A Palo Alto Networks spokesperson said the company wanted to be sure analysts had time to adjust the news it plans to release and to potentially follow up with management.
David Paul Morris/Bloomberg
This better be good.
The security software company
Palo Alto Networks
has taken the unusual step of scheduling its July quarter earnings release for this coming Friday, after the close of trading. And that is going to be followed by a two-hour meeting with analysts.
That is odd scheduling. Almost no one ever announces earnings, or any other significant financial news, on Friday afternoons, in particular in the middle of the summer. The analyst call isn’t scheduled to end until 6:30 p.m. Eastern time, which isn’t a strategy that will win friends among analysts and investors attempting to get out of town for one of the last summer weekends.
In fact, investors seem convinced the company has chosen this inconvenient timetable because it has news to deliver that shareholders might not like. Palo Alto Networks (ticker: PANW) shares have slumped 15% since the company disclosed the unusual timing of the earnings release, which covers its fiscal fourth quarter. Also pressuring the stock were weak earnings earlier this month from rival
Fortinet
(FTNT), although the shares remain up 55% so far this year.
In the scheduling announcement, Palo Alto Networks said that in addition to providing guidance for its July 2024 fiscal year, it will provide financial targets through fiscal 2026, and “will provide a review of company strategy, including product roadmap, go-to-market, financial objectives and total addressable market to provide an updated view of Palo Alto Networks’ market opportunity and investment thesis.”
Deutsche Bank analyst Brad Zelnick wrote in a research note that “Friday could very well be the day” that the company announces it will no longer sell hardware. While the company is primarily a software vendor, it delivers some of its firewall products as appliances. In the most recent quarter, hardware was 16% of revenue, down from 35% in 2018, he noted.
Zelnick also said that the company is holding its annual sales kickoff meeting the following week. He thinks that either there will be “significant organizational change,” or an important shift in the company’s strategy that needs to be unveiled to investors before the sales event. “We lean more toward expecting a strategic and operational reveal that likely requires some time to digest, and possibly for analysts to rebuild financial models,” he wrote.
Guggenheim analyst John DiFucci said that field checks indicate the company had a strong finish to the July quarter. “We’ve been asked what this all means and frankly, we don’t know,” he wrote in a research note. “In our experience, it’s not usually positive when management’s actions differ materially from the norm but given the complexity of Palo Alto Networks’ business model and sometimes opaque disclosure, it’s hard to be sure of anything.”
DiFucci’s conclusion is that the quarter is likely to have “something for everyone,” but at least something of concern, whether a downtick in free cash flow estimates, a product cycle rollover, “or simply weak demand.” DiFucci kept his Neutral rating on the stock.
Asked about the unusual timing of the announcement and analyst call, a spokesperson for Palo Alto Networks said this: “We will be covering a handful of strategic topics, beyond our Q4 results, including medium term guidance. We wanted to ensure that our sell-side analysts would have time to consume the data, as well as potentially follow-up with us. Furthermore, we have significant internal events taking place during the weeks of 8/14 and 8/21 (including our national sales meeting).”
For the fourth quarter, the company’s guidance calls for revenue to increase by between 25% and 27%, ranging from $1.937 billion to $1.967 billion. Billings guidance calls for an increase of 17% to 19% to between $3.15 billion and $3.20 billion. Adjusted profits are projected to be between $1.26 and $1.30 a share.
For the full year, Palo Alto Networks has been projecting revenue of $6.88 billion and $6.91 billion, up 25% to 26%, with billings of $9.18 billion to $9.23 billion, an increase of 23% to 24%, and non-GAAP profits of $4.25 to $4.29 a share.
Wall Street estimates call for fiscal 2024 revenue of $8.4 billion, up 21.5%, $10 billion in fiscal 2025 and $12.6 billion in fiscal 2026.
Write to Eric J. Savitz at [email protected]
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