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Palo Alto Networks Tumbles After Sales Forecast Disappoints

(Bloomberg) — Palo Alto Networks Inc. slipped in late trading after giving a downbeat forecast for the current period, renewing concerns about a slowdown in cybersecurity services.

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Revenue for the fiscal fourth quarter will be between $2.15 billion and $2.17 billion, the company said in a statement Monday. Analysts had expected a figure at the high end of that range, according to data compiled by Bloomberg.

Fourth-quarter billings — a closely watched benchmark — will range from $3.43 billion to $3.48 billion for the period through July, Palo Alto Networks said. Analysts had estimated $3.47 billion.

The tepid outlook follows another disappointing quarterly report in February, when shares of Palo Alto Networks suffered their worst single-day decline. At the time, CEO Nikesh Arora said customers were facing “spending fatigue” when it came to cybersecurity. This has fueled fears that customers will tighten their budgets despite a surge in attacks.

In after-hours trading Monday, shares fell 10% to $291.55. That erased the stock’s 9.8% gain this year through the close. Shares of peers Crowdstrike Holdings Inc., Zscaler Inc. and Fortinet Inc. also fell in extended trading.

Shorter contracts and strategy changes have weighed on bookings at Palo Alto Networks, according to Bloomberg Intelligence. But management expects growth to resume in the second half of 2024.

On a call with analysts, CFO Dipak Golechha acknowledged that the company had “significant volatility in our billings.” But he argued that this was due to payment terms and that there were other, more relevant metrics, such as new subscription sales for next-generation products, which may include artificial intelligence.

Arora echoed that idea, saying the billings were “an artificial measure.” He prefers to focus on subscription revenues and remaining performance obligations, and says he is surprised by the market reaction. “Using these numbers, the company is stronger than we expected,” Arora said.

‘No change’

Arora also said that cyberattacks continued unabated. He highlighted violations by sophisticated state actors and others that he said can cause damage to systems within hours. Arora said he expects cybersecurity spending to continue, adding that customers are focused on securing the cloud.

“When it comes to spending on cybersecurity, we don’t see any change in space or trajectory,” he said. “Most clients want to complete a series of projects and the only limiting factor seems to be execution capacity. »

An April report backed by the US government highlighted the risks of cloud computing. It cited multiple problems with Microsoft Corp. in particular, but also raised broader concerns about the ability of state actors to compromise increasingly sophisticated cloud service systems.

Despite this, Palo Alto Networks and its peers are suffering from slowing firewall sales, according to Westpark Capital, while other product categories face “intense competition.”

Slower sales

The company’s third-quarter revenue rose 15% to $1.98 billion, marking the slowest growth since the start of 2020. Earnings came in at $1.32 per share, excluding certain elements. These two figures nevertheless exceed analysts’ estimates.

The Santa Clara, Calif.-based company reported a 3% increase in billings for the quarter, the smallest increase since its IPO in 2012.

But next-generation annualized recurring revenue — one of the numbers touted by Palo Alto Networks executives — was $3.79 billion, beating the $3.71 billion estimate and up 47%. %. Outstanding performance obligations, a measure of contracted sales that have not yet been invoiced, were $11.3 billion, up 23%.

(Updates with more executive comments starting in fourth paragraph.)

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Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe.Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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