Palo Alto
Networks stock was dropping early Thursday as markets digested its unexpectedly weak billings. The security-software company said it was to do with customer requests for flexibility on payments but analysts were split on whether that was enough to dismiss fears of falling demand.
Palo Alto
(ticker: PANW) shares were down 6.3% at $240.00 in premarket trading following its results, putting a small dent in its 84% rise for the year to date through to Wednesday’s close.
Fellow cybersecurity companies were also suffering with
CrowdStrike
(CRWD) down 2.4% in premarket trading and
Zscaler
(ZS) down 1.7%. The sector’s stocks have often moved in tandem this year as investors gauge how macroeconomic uncertainty is affecting demand.
Analysts at Evercore weren’t worried, despite Palo Alto’s quarterly billings of $2.02 billion missing Wall Street expectations.
“From our field work this quarter…there is no discernible demand issue, no uptick in churn, no change in competitive dynamics or win rates, and management exceeded on all other reported metrics,” wrote Evercore analyst Peter Levine.
Levine pointed to Palo Alto’s management preferring to sign one-year deals with customers on minimal discounts rather than committing to longer deals with larger discounts. He kept an Outperform rating on the stock and a $315 target price.
Palo Alto had previously said customers were opting for deferred payment plans and consolidating their spending.
The dip in Palo Alto’s shares is a buying opportunity for RBC Capital Markets analyst Matthew Hedberg, who wrote that the change was natural as deal sizes become larger and demand for deferred billings increases.
Hedberg kept an Outperform rating and $281 target price on the stock.
However, Palo Alto’s explanation didn’t wash with everyone.
“We don’t doubt that ‘flexibility’ in payment terms had some impact on total billings, but it seems like there’s something more at play here—we suspect macro softness, which has affected most companies along the way and PANW is not immune to this. No one is,” wrote Guggenheim analyst John DiFucci.
DiFucci questioned why Palo Alto’s current deferred revenue growth was also weaker than expected—growing 1% sequentially, versus 2%-5% over the past five years. Deferred revenue is a payment from a customer for future goods or services.
“We wouldn’t expect a sudden increase in annual billings mix to have an effect on Current Deferred Revenue so quickly,” he wrote.
DiFucci kept a Neutral rating on the stock with no price target.
Write to Adam Clark at [email protected]
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