Palo Alto Networks Q4 Earnings: Ransomeware Attack Pays Off


Largecap network security stock Palo Alto Networks Inc (NYSE: PANW) reported fiscal Q4 2017 earnings after the Thursday market close with better-than-expected quarterly resultsafter adding arecord number of customers in the wake of the recent global ransomware attack. Q4 revenue grew 27% to $509.1 million andthe GAAP net loss was $38.2 million versusa GAAP net loss of $31.4 million. For fiscal year 2017, total revenue grew 28% to $1.8 billion and the GAAP net loss was $216.6 million versus a GAAP net loss of $192.7 million. The CEO commented:


“We are pleased to have ended fiscal 2017 with a record fourth quarter, including market-leading revenue growth and the highest number of new customer additions recorded in a single quarter by the company. For the fiscal year, revenue was $1.8 billion, up 28 percent year over year; our customer base grew to more than 42,500; and we delivered the largest product and features launch in our history. Also, Steffan Tomlinson, our chief financial officer, has informed me of his intent to retire from his position. I would like to thank Steffan for his contributions to Palo Alto Networks and his leadership role in guiding the company through a period of tremendous growth and market share gains. We are initiating a search for his replacement, and Steffan will remain in his current position until the search is completed.”


The CFO added:

“During the quarter, we added approximately 3,000 new customers and reported record revenue of $509 million, an increase of 27 percent year over year. We also delivered record deferred revenue and billings, while generating cash flow from operations of $240 million and free cash flow of $190 million, ending the fiscal year with approximately $2.2 billion in cash, cash equivalents and investments.”

Outlook for the fiscal first quarter 2018 was given as:

Total revenue in the range of $482 to $492 million, representing year-over-year growth between 21 percent and 24 percent. Product revenue in the range of $170 to $173 million, representing year-over-year growth between 4 percent and 6 percent. Total billings in the range of $580 to $600 million, representing year-over-year growth between 12 percent and 16 percent. Diluted non-GAAP net income per share in the range of $0.67 to $0.69 using 93.5 to 95.5 million shares.


Outlook for the fiscal year 2018 was given as:

Total revenue in the range of $2.125 to $2.165 billion, representing year-over-year growth between 21 percent and 23 percent. Product revenue in the range of $735 to $750 million, representing year-over-year growth between 4 percent and 6 percent. Total billings in the range of $2.64 to $2.70 billion, representing year-over-year growth between 15 percent and 18 percent. Diluted non-GAAP net income per share in the range of $3.24 to $3.34 using 96 to 98 million shares.

Our Elite Opportunity Pro (EOP) portfolio newsletter also had this to say before the May earnings report:


Before we get into another new idea today, we got some interesting news from one of our long-term ideas in Cisco Systems (CSCO), who’s partnering up with IBM (IBM) to provide collaborative network security and cyber-attack prevention services.

This can’t be good for a lot of those smaller less proven cyber security firms out there, including high profile names over the last few years like Palo Alto Networks (PANW), who got pummeled back in March on soft numbers.


For those of you out there interested in shorting PANW, put the idea on your watch list. See if you can get a short entry around $131 or so, and open up some long-term put options around that level, because today’s news from Cisco is clearly going to hurt many of those names.

A technical chart for Palo Alto Networks shows volatility and a downtrending line:

A long term performance chart shows Palo Alto Networks falling over the past two years, but still outperformingpotential peers in the space such as large cap Cisco Systems, Inc (NASDAQ: CSCO), mid capFortinet Inc (NASDAQ: FTNT) and small cap Barracuda Networks Inc (NYSE: CUDA):


Finally, here is a quick recap of Palo Alto Networks recent earnings history along with EPS estimate trends from the Yahoo! Finance analyst estimates page going into the current earnings report:

Earnings History10/30/20161/30/20174/29/20177/30/2017
EPS Est. 0.53 0.62 0.55 0.79
EPS Actual 0.55 0.63 0.61 0.92
Difference 0.02 0.01 0.06 0.13
Surprise % 3.80% 1.60% 10.90% 16.50%
EPS TrendCurrent Qtr. (Oct 2017)Next Qtr. (Jan 2018)Current Year (2018)Next Year (2019)
Current Estimate 0.68 0.78 3.27 4.16
7 Days Ago 0.68 0.78 3.27 4.18
30 Days Ago 0.68 0.78 3.27 4.2
60 Days Ago 0.68 0.78 3.26 4.2
90 Days Ago 0.68 0.78 3.27 4.19