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Why Palo Alto Networks, Inc. Stock Fell 25.8% in March

What happened

Shares of Palo Alto Networks Inc.  (NYSE: PANW  )  declined 25.8% in the month of March, according to data provided by S&P Global Market Intelligence, after the next-gen security specialist delivered weaker-than-expected fiscal second-quarter 2017 results.

So what

Palo Alto plummeted more than 22% on March 1, 2017, alone -- the day after it confirmed that quarterly revenue climbed 26.3%, to $422.6 million, which was below guidance for $426 million to $432 million. On the bottom line, adjusted net income grew 50.9%, to $59.6 million, and adjusted net income per share rose 46.5%, to $0.63 -- near the high end of Palo Alto's guidance range of $0.61 to $0.63.

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Now what

CEO Mark McLaughlin admitted the company was "disappointed" with its top-line results, which they believe were held back by "go-to-market execution issues that are becoming more evident as we progress through the year." Namely, those issues arrived as the company "over-complicated" its account coverage with too much market segmentation. To solve the problem, Palo Alto is reorganizing its account coverage model and adjusting its investments in sales and marketing accordingly. 

But Palo Alto also provided guidance for current-quarter revenue of $406 million to $416 million -- good for growth of 17% to 20% from the same year-ago period -- and adjusted net income of $0.54 to $0.56. Both ranges were well below Wall Street's models, which called for quarterly revenue of $454.6 million and adjusted earnings of $0.63 per share. 

As I pointed out subsequent to the report, however, CFO Steffan Tomlinson noted they are "purposefully being prudent and cautious around the guide because [they] understand that the execution issues will take a while to get through." And in the meantime, Palo Alto Networks announced an incremental $500 million share repurchase authorization, effectively doubling its total repurchase authorization to $1 billion.

But these moves did little to appease our impatient market as investors worry that Palo Alto's current headwinds may not prove so easily solved in the near term. So while the pullback might well represent a compelling point at which long-term shareholders can open or add to a position, it's no surprise skittish investors were bidding down Palo Alto Networks stock last month.

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4/28/2017 4:03 PM
PANW $108.41 Down -1.54 -1.40%
Palo Alto Networks CAPS Rating: ***

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