Palo Alto Networks (PANW) was among the Nasdaq favourites over many months. This leader in cybersecurity solutions added nearly 40% to its market value from late November to mid-February. Yet, this time it suddenly fell into a disgrace spot after getting a pretty nice kick from its own abrupt and unhappy forward guidance for the year ahead. The hardware and software product maker for protection against malware threats, breaches and other types of internet attacks provided strong and even better than expected quarterly earnings. However, its shares initially dropped by 13% in the first minutes after the report and then extended losses to almost 20% in after hours trading on February 20, and to more than 24% in the pre-market before the regular session on Wednesday.

Our very subjective judgment of the situation is that a "wait and see" attitude with postponing more purchases of the stock would be an adequate choice now, especially if one was not so lucky to take profit before the report or immediately after the night drop. It is unlikely that the pessimistic mood on the audience' pet company will last too long, and then it would be possible to return to Palo Alto purchases. Anyway, it is worth considering the idea of this investment not earlier than in two or three weeks, or perhaps even in April, when the dust from the unsuccessful performance ultimately settles.

Palo Alto's Q4 2023 (or Q2 fiscal year of 2024) earnings per share (EPS) came in at $1.46 vs $1.30 in consensus estimates, on revenue of $1.98 billion vs $1.97 billion averagely expected. This would be a great result to form another solid pillar for the future progress, but the company's announcement also included slower growth projections like a revenue range update to between $1.95 billion and $1.98 billion against the consensus number of $2.04 billion for the next quarter, a full-year revenue range between $7.95 to $8 billion, compared to its management's prior guidance of $8.15 to $8.2 billion, as well as guiding to full-year total billings between $10.1 and $10.2 billion vs a previous guidance of $10.7 and $10.8 billion for 2024.

The investing crowd simply sold out the asset on the news, even though Palo Alto CEO Nikesh Arora mentioned that some lowered business targets were set due to a “shift” in strategy, “wanting to accelerate growth, our platform migration and consolidation and activating AI leadership”. This looks like he only cares about creating even a stronger foundation for the future leadership in the segment as Mr Arora literally added that the company needs to face “a difficult customer” when shifting its stance. "Our leadership across all of our three platforms and growing cross platform adoption puts us in a strong and unique position," he noted.

If so, our point is that the reasoning behind the latest revision of forecasts by the company's management probably lies in an attempt of making its services better and more closely related to the tasks of artificial intelligence epoch, which ultimately would make the financial results even more attractive but little later. The current gross margin is almost 75% up from 71.8% in the same quarter last year, and the numbers are so big. After all, that updated billings guidance represented a YoY growth of more than 10% or even 11%, which are still double digits, even as they are not so high compared to the previous show of 16% to 17% billings growth. Palo Alto expects revenue growth between 15% and 16%, only slightly down from initial guidance between 18% to 19% growth. Again, a refreshed revenue guidance represented only a 2.5% decrease, not a 20% slump or so, compared to previous estimates. The migration process of many customer companies to the cloud, when their employees would work remotely in rather insecure environments, will continue, with growing demand for options offered by cybersecurity leaders.