Key facts
- Palo Alto Networks stock fell 5.6% to close around $280.
- The company reported Q3 revenue of $3 billion and adjusted EPS of $0.85, beating analyst estimates.
- Next-generation security ARR reached $8.13 billion, up 60% year over year.
- Full-year revenue guidance was raised to $11.42 billion, about 1% above analyst forecasts.
- CEO Nikesh Arora indicated a target of 40% free cash flow margin by 2028.
Palo Alto Networks (PANW) stock declined 5.6% to approximately $280, despite reporting third-quarter results that surpassed analyst expectations for both revenue and earnings per share. The company announced Q3 revenue of $3 billion and adjusted EPS of $0.85. Next-generation security annual recurring revenue (ARR) reached $8.13 billion, marking a 60% year-over-year increase, while organic ARR grew 28%. The company also raised its full-year revenue guidance to $11.42 billion, approximately 1% above analyst forecasts. CEO Nikesh Arora highlighted a target of achieving a 40% free cash flow margin by 2028. Despite these positive metrics, the stock experienced a sell-off, potentially due to the significant 79% surge in its price in the 30 trading days leading up to the earnings report, suggesting that market expectations may have been exceptionally high.
Analysts from UBS, Evercore ISI, Rosenblatt, Stifel, and Wells Fargo adjusted their price targets upwards following the report, with Evercore ISI setting a target of $375. Mizuho maintained an Outperform rating, expressing continued bullishness on the company's shift towards higher-growth recurring revenue. Remaining performance obligations stood at $18.4 billion, exceeding estimates by $590 million, and adjusted free cash flow for the quarter was $910 million, contributing to a trailing 12-month free cash flow margin of 38.5%.