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Palo Alto Networks CEO: ‘We’re Taking Share From Everyone’

Investors heaved a collective sigh late Thursday, relieved that a slowdown in network security spending didn’t batter Palo Alto Networks ( PANW ), which delivered view-crushing fiscal Q2 earnings on its simplified platform approach. Midday on the stock market today , Palo Alto Networks stock was up 2%, near 143, after earlier rising as much as 9.7%. IBD’s 41-company Computer Software-Security industry group rose as much as 4% in early trading Friday. For its fiscal second quarter ended Jan. 31, Palo Alto reported 40 cents earnings per share ex items on $334.7 million in sales, up 110.5% and 54%, respectively, vs. the year-earlier quarter. Both metrics topped the consensus view for 39 cents and $318.3 million. Sales and EPS growth, however, decelerated for the second consecutive quarter. Billings Surge To Undercut EPS During Q2, Palo Alto reported record billings growth of 62% year over year to $459 million, vs. consensus expectation for $417 million, Needham analyst Scott Zeller wrote in a research report. Zeller maintained his buy rating but cut his price target on Palo Alto Networks stock to 171 from 202. Palo Alto Networks isn’t a “fad” in security, but the company will likely face some challenges in continuing billings acceleration, he wrote. Billings accelerated on 2,000 added customers and a 68% jump in subscription sales to $84.3 million. But Palo Alto Networks is a “victim of its own success,” Pacific Crest analyst Rob Owens wrote in a report. Palo Alto Networks cut its fiscal 2016 operating margin guidance to 18%-19% vs. earlier views for 22%-25%, noting commissions on subscription sales will impact sales-and-marketing expenses. Those expenses jumped by $16 million sequentially in Q2. “The upshot is strong free cash flow and free cash flow margin,” Owens wrote. The company expects 40% free cash flow margin in Q3, suggesting fiscal 2016 free cash flow should reach $730 million, according to Zeller. ‘Go-To’ Broad Purchase Current-quarter guidance for $335 million-$339 million in sales topped Wall Street views for $334.9 million. But the EPS outlook for 41-42 cents missed analysts’ consensus forecast for 45 cents. Sales and EPS would be up 44% and 80%, respectively, at the midpoints of Palo Alto Networks’ guidance and are expected to decelerate for the third consecutive quarter. Yet Palo Alto Networks’ Q2 sales increased by 50%-plus for the seventh consecutive quarter, and billings surged to the highest point in 11 straight quarters, amid concerns of a slowdown in security spending. A “paradigm shift” from legacy systems is buoying Palo Alto Networks, CEO Mark McLaughlin told analysts on the company’s earnings conference call late Thursday. He sees Palo Alto Networks taking share from Cisco Systems ( CSCO ), Check Point Software Technology ( CHKP ), Fortinet ( FTNT ) and Juniper Networks ( JNPR ). Some analysts tend to agree . “I think it’s very obvious we’re taking share from everyone in the space,” McLaughlin said. William Blair analyst Jonathan Ho sees Palo Alto Networks as on track to become the largest pure-play cybersecurity company. Currently, Check Point and Symantec ( SYMC ) have a narrow lead with $14.8 billion and $12.7 billion market values, respectively, to Palo Alto Networks’ $12.6 billion. Blair maintained his outperform rating on Palo Alto Networks stock. “Palo Alto continues to gain market share behind what we believe is flawless execution,” Piper Jaffray analyst Andrew Nowinski wrote in a report. Nowinski retained his overweight rating and 208 price target on Palo Alto Networks. The company’s platform vision is beginning to bear fruit, Zeller wrote. “Platform (is) an overused term, but it’s key to why we hear Palo Alto continues to grow 60%-plus (in billings) as others decelerate,” he wrote. “In an environment where there was much anxiousness about buying the point-solution of the moment, Palo Alto has crafted a position as the ‘go-to’ broad purchase for re-architecting security.” Image provided by Shutterstock .

Palo Alto Networks Q2 Beats Despite Deceleration, Stock Up

Palo Alto Networks ( PANW ) stock rocketed late Thursday after the cybersecurity firm blasted Wall Street’s fiscal Q2 projections and issued Q3 sales guidance that easily topped consensus estimates, though its EPS outlook missed views. For its fiscal Q2 ended Jan. 31, Palo Alto reported 40 cents earnings per share on $334.7 million in sales, up 110.5% and 54%, respectively, from the year-earlier quarter. Both measures, however, decelerated for the second consecutive quarter. Sales beat the consensus estimate of 40 analysts polled by Thomson Reuters for $318.3 million. Palo Alto topped EPS expectations by a penny. Three months ago, Palo Alto guided sales to $314 million to $318 million and EPS ex items to 38-39 cents. Current-quarter sales guidance for $335 million to $339 million topped analyst forecasts for $334.9 million, but Palo Alto’s EPS ex items guide for 41-42 cents missed expectations for 45 cents. Palo Alto’s Q3 sales would be up 44% at the midpoint of guidance, and EPS ex items would rise 80% at the midpoint. But both metrics would also decelerate for the third consecutive quarter. Palo Alto Networks stock was up more than 2% in after-hours trading, after the company released earnings.

IBM Cements Security Standing With Redoubled Check Point Alliance

Tech giant IBM ( IBM ) is solidifying its cybersecurity standing by deepening ties to No. 1 pure player Check Point Software Technology ( CHKP ) to pool research and integrate systems, the companies were scheduled to announce Thursday. It’s the most recent in a series of IBM moves to publicly step-up its cybersecurity initiatives. In 2015, IBM drew in $2 billion in cybersecurity sales , just 2.4% of total revenue. But that dollar mark easily topped total sales for Palo Alto Networks ( PANW ), Proofpoint ( PFPT ), Fortinet ( FTNT ) and FireEye ( FEYE ), and 12% year-over-year growth outstripped that of Symantec ( SYMC ) and Check Point. By combining forces, IBM and Check Point aim to thwart what the United Nations estimates is the $445 billion cybercrime underworld. Check Point’s and IBM Security’s researchers will be free to cross company borders to discuss threat data. And several Check Point applications will be folded into IBM technology, Check Point’s vice president of security services, Avi Rembaum, told IBD. The alliance redoubles an 18-year relationship between IBM and Check Point. IBM manages security offerings for clients across the globe, and those implementations sometimes include Check Point products. The two companies have partnered in that regard for the past 18 years. Thus, IBM is keenly apprised of Check Point’s software. Under the new accord, Check Point will further school IBM on its tech. “Tightening the relationship means we’ll be giving IBM very deep guidance around exactly what fields they should be looking for and how systems integrate,” Rembaum said. The new alliance centers on four main keys. Check Point and IBM will combine research forces to create “a gigantic pool of security researchers,” Rembaum said. Doing so will expand the potential threat intelligence-gathering net, but also lend credibility to potential discoveries. “When we conduct research, it’s nice to have another leading organization with which we can provide notes,” he said. “It’s helpful to have a pool of researchers to validate assumptions. . . . When two sources say it’s true, it makes it more relevant and more critical.” But what’s more compelling is the integrated threat-prevention and analytics technologies, Rembaum says. Check Point will fold its SmartConsole application into the IBM Security App Exchange for integration with IBM’s Security QRadar Intelligence Platform. Together, the systems can tackle the entire security gamut — analyzing, blocking and mitigating attacks. The integration also means that a customer can operate within an IBM space but still access Check Point functions, Rembaum said. IBM customers will also be allowed to manage Check Point Mobile Threat Prevention within IBM’s MaaS360 enterprise-mobility management system, a software used to remove malicious apps and do quick security rollouts. Mobile is “the most critical space” for customers to protect, he said. “(Smartphones) are an always-on and always-connected vehicle for employees,” he said. “And they operate outside the corporate security perimeter.” The expanded alliance also allows IBM to manage Check Point’s entire suite of products for clients, Rembaum said. Check Point will expand the number of tools IBM supports. “So IBM can be there in lockstep with us when we offer services,” he said.