Club stock Palo Alto Networks dropped Thursday evening on a strong quarter and a solid full-year outlook that were not good enough to satisfy investors’ lofty expectations. Revenue for the cybersecurity company’s fiscal 2025 second quarter increased 14% year over year to $2.26 billion, exceeding the LSEG-complied Wall Street consensus estimate of $2.24 billion. Adjusted earnings per share (EPS) increased 11% to 81 cents in the three months ended Jan. 31, ahead of the 78-cent LSEG consensus estimate. Palo Alto Networks Why we own it: We believe cybersecurity is a secular growth market as bad actors are relentless and companies simply cannot afford to not invest in defense. It is a never-ending arms race. We believe Palo Alto Networks, in particular, is uniquely positioned to win due to its best-in-class tools and a broad product portfolio that allows it to provide an all-encompassing “platform” solution to cybersecurity. Competitors : CrowdStrike (also a Club stock), Fortinet , Cisco Systems Last buy : Aug. 2, 2024 Initiation : Feb. 15, 2023 Bottom line It’s been one year since Palo Alto Networks first announced its plan to accelerate the concept of platformization, which essentially is the consolidation of different products and services into a single platform, and the results show it has gained some steam and has started to scale, creating efficiencies from a sales perspective. The company had 75 net new platform clients in this year’s second quarter, up from 45 in Q2 in fiscal 2024. Palo Alto now has 1,150 platformizations, up from about 1,100 in the first quarter. Management continues to believe they’re on track to hit their target of 2,500 to 3,500 by fiscal year 2030. Palo Alto is pushing platformization because it means customers are using more of its products and services, leading to bigger deals and higher annual recurring revenue per customer. One of the big wins in the quarter was a $68 million deal with a bank in Asia that consolidated with Palo Alto for the first time. Another highlight was a $61 million transaction with a U.S. municipality. The deal included the renewal of its network security estate and expansion across Palo Alto’s portfolio. A third big win was a $25 million deal with an auto manufacturer. This customer had already converted to the platform in network and cloud security and made additional purchases across the company’s offerings. In total, Palo Alto Networks had 74 accounts add transactions of over $5 million each. That’s up 25% year over year. Additionally, 32 accounts had transactions over $10 million each, which was up 52% year over year. Another case for this umbrella strategy is better security outcomes. During the conference call, CEO Nikesh Arora shared the findings of a recent study the company did with IBM. It showed that platformed organizations take 72 fewer days to detect an incident and four fewer days to contain a security incident. Arora was also upbeat about the outlook for cybersecurity…
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