Palo Alto Networks beats earnings estimates, announces stock split

Key points

• Palo Alto Networks stock was up slightly on solid Q1 earnings.

• The cybersecurity firm raised its earnings guidance for fiscal 2025.

• The company will conduct a two-for-one stock split on December 12.

The leading cybersecurity firm also announced a two-for-one stock split.

Palo Alto Networks (NASDAQ: PANW) was moving higher Thursday as the cybersecurity company topped first quarter estimates and raised its guidance for Q2 and fiscal 2025.

The company produced revenue of $2.14 billion in the fiscal first quarter, a 14% increase over the same quarter a year ago. This bested Wall Street estimates of $2.12 billion and was beyond its own prior guidance.

Net income soared 81% to $1.1 billion, while earnings per share spiked 77% to 99 cents per share. On an adjusted basis, Palo Alto Networks generated EPS of $1.56 per share, up 13% and ahead of estimates of $1.48 per share.

In addition, the technology firm announced a two-for-one stock split that will take effect on December 16.

Platformization strategy a “game changer”

Palo Alto Networks has been moving toward a model where it bundles its enterprise cybersecurity products and services into one package, as opposed to selling them separately, in different silos. Chairman and CEO Nikesh Arora calls this the platformization strategy, and it has been driving revenue gains.

“Our Q1 results reinforced our conviction in our differentiated platformization strategy,” Arora said. “We see a growing market realization that platformization is the game changer that will solve security and enable better AI outcomes. I expect this will be a multiyear trend for which we are best positioned to deliver to our customers.”

But the company still reports them as separate line items, with subscription and support services generating the bulk of the revenue, about $1.8 billion in Q1. That’s 20% higher compared to the same quarter a year ago. Product revenue rose about 4% to $354 million.

A key metric for Palo Alto is Next Gen Security ARR (annual recurring revenue) which is the annualized allocated revenue of all active contracts. In the quarter, this metric grew 40% year-over-year to $4.5 billion, due to growth in platformization. The company added more than 70 new platform customers in the quarter, with about one third coming from its recent acquisition of QRadar SaaS. At the end of Q1, Palo Alto Networks had approximately 1,100 platform customers.

The company also noted strength in ARR per platformized customer, which was 6% higher in Q1 than it was on average in 2024. The improvement is in part due to its success in signing larger deals, including a large technology firm for over $50 million.

“We’re happy with our continued strong growth in NGS ARR in Q1, fueled by our continued platformization momentum,” Arora said. “We see multiple drivers here. Network security customers are increasingly deploying our software and SASE form factors, including adopting advanced Zero Trust security subscriptions across them. Over time, these customers have a significant incentive to converge their network security architecture towards adoption of our full suite of three form factors.”

One area of concern that some analysts had, along with investors, was in the billing numbers. The number of new billings dropped 14%, which was a bigger number than some analysts expected.

But Arora said the company will no longer consider billings a key metric and will stop reporting it going forward, because it does not accurately gauge the new business practices, via platformization. Instead, the company will focus on NGS ARR and RPO (Remaining Performance Obligations), which is revenue a company expects based on contracts that have not yet been fulfilled as its key metrics.

Raising 2025 guidance

The strong first quarter results have caused Palo Alto to raise its guidance for the second quarter and all of fiscal 2025.  

It expects NGS ARR of between $4.70 billion and $4.75 billion, which would be year-over-year growth of between 35% and 36%. It also anticipates RPO of $12.9 billion to $13.0 billion, which would be 20% to 21% higher than the same quarter a year ago. It would also be on par with the 20% RPO growth in Q1.

Revenue is projected to be in the range of $2.22 billion to $2.25 billion in Q2, representing 12% to 14% year-over-year growth. This is within range of analysts’ estimates. Also, adjusted EPS is targeted for $1.54 to $1.56, similar to last quarter.

For fiscal 2025, Palo Alto expects NGS ARR of $5.52 billion to $5.57 billion, which would be annual growth of 31% and 32%. RPO is targeted to come in between $15.2 billion to $15.3 billion, up 19% to 20% for the year.

Full year revenue is projected to be in the range of $9.12 billion to $9.17 billion, a 14% annual gain and in range of analysts’ projections.

In addition, adjusted EPS is targeted for $6.26 to $6.39, up from previous estimates, while adjusted operating margin is set for 27.5% to 28.0%. Finally, adjusted free cash flow margin is estimated to be 37% to 38%.

Two-for-one stock split

Finally, Palo Alto announced a two-for-one stock split. This means that each stockholder as of the close of trading on December 12 will receive one additional share for every share held. Trading is expected to begin on a split-adjusted basis on December 16.

“This is also done to help ensure our shares are accessible to all employees and investors,” Arora said.

The stock is currently trading at about $397 per share, up 1% on the day and 35% YTD. It is also trading at 54 times earnings, so it is a bit pricey right now.