Palo Alto Networks is clawing its way back after a brutal earnings sell-off in February, and Wall Street analysts say the cybersecurity company’s earnings next week will justify its resurgence. Shares of Palo Alto plunged 28% on Feb. 21, a session after the company delivered a more cautious outlook for the rest of 2024. The stock then seesawed for more than a month until shares bottomed out at $265 apiece on April 4. At the top of investors’ worries: Softness in the U.S. federal government market, along with the financial impact of ramping up its “platformization” strategy to bundle services and products. However, Palo Alto’s stock has since advanced 13.2%, outperforming the iShares Cybersecurity and Tech ETF ‘s 1.2% decline over the same period. There are three reasons that investor sentiment will continue to improve into the May 20 earnings release and beyond, according to recent research notes from Barclays and Morgan Stanley. 1. History unlikely to repeat itself Sellers came out in full force after CEO Nikesh Arora announced a pivot to accelerate “platformization” during the February conference call. The shift in business strategy requires Palo Alto to give customers its new services and products for free to demonstrate their many benefits. This, in turn, would impact billings and revenue growth over the next 12 to 18 months. Palo Alto argued that near-term headwinds would pay off down the road with larger deals as customers look for a one-stop shop for their cybersecurity offerings. The company in February lowered its fiscal 2024 total billings guidance to a range of $10.1 billion to $10.2 billion. Prior guidance was $10.7 billion to $10.8 billion. Its new outlook was below Wall Street analysts’ estimates at the time of $10.74 billion. Meanwhile, Palo Alto delivered a total revenue outlook of $7.95 billion to $8 billion for fiscal 2024, lower than the company’s previous guidance of $8.15 to $8.2 billion. Analysts’ expectations were $8.19 billion as well. But Barclays analysts said these discounted offerings shouldn’t impact the company’s three-month financial performance. “This is the first quarter where PANW is scaling its free trials [and] platformization strategy, but we haven’t picked up any meaningful [go-to-market strategy] changes in our checks quite yet so the headwind to billings from free trials may be smaller than expected,” the analysts wrote in a May 7 note. Plus, given that management has already lowered Palo Alto Network’s guidance for the rest of 2024, analysts say billing estimates for the upcoming print are de-risked. This means figures were so conservative last quarter that investors believe the odds of further downside are low. Not only may this circumvent another huge decline in the stock price after results, but it gives management ample room to beat expectations. During Palo Alto’s post-earnings call, we’re eager to learn more about how Arora’s bet on platformization is playing out, including clearer timing on when…
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