Palo Alto's Large Deals Taking Longer Than Expected To Close

Baird believes the recent weakness in Palo Alto Networks Inc PANW shares offer a buying opportunity as “we didn’t hear anything or see anything in the financials that dampens our positive opinion on shares of PANW.”

Palo Alto's Fall Post-Print

Shares of Palo Alto fell 13 percent after its first quarter revenue and billings numbers missed consensus as elongated sales cycles led deals slip in to the second quarter.

Palo Alto’s first-quarter revenue/non-GAAP EPS of $398 million/$0.55 is compared to consensus of $400 million/$0.53. Billings of $517 million was below consensus of $525 million.

For the second quarter, the company guided revenue/non-GAAP EPS to $426 million–$432 million/$0.61–$0.63 versus consensus of $439 million/$0.63.

Staying Positive

However, the company stressed that its win rates remain high, but bigger deals and bigger companies require more time in their purchasing decisions. Palo Alto ended the quarter with more than 35,500 customers, adding over 1,500 customers. Palo Alto’s advanced threat prevention module, Wildfire, rose to 14,000 customers, while the endpoint module, Traps, grew to 600 customers.

The company expects second half performance to accelerate and reiterated FY 2017 non-GAAP EPS guidance of $2.75–$2.80. In its second half, Palo Alto is expected to see strong sales pipeline, easy compares, and increased traction with the Service Provider vertical.

Analyst's Take

“Our channel commentary continues to cite Palo Alto as the thought leader in a category of the market likely to undergo consolidation,” analyst Jayson Noland wrote in a note.

Noland maintains his Outperform rating and $175 price target on the shares, which were currently down 12.96 percent to $140.13.