Palo Alto Networks (PANW) ARR and RPO To Watch

$Palo Alto Networks(PANW)$ will be reporting their earnings results for fiscal Q2 2025 today (13 Feb) after the market close.

The consensus revenue that analysts are expecting would be at $2.24 billion which represent a growth of 13.3% but this is lower than the 19.3% growth that was recorded for the same period last year.

The earnings per share is estimated to come in at $0.78 per share.

Palo Alto Networks (PANW) Last Positive Earnings Call Only Manage To Give Modest 0.15% Change

Since the last earnings call on 20 Nov 2024 which has a positive sentiment, PANW only managed to see a modest 0.15% change to its share price. The earnings call presented a generally positive outlook with significant growth in next-generation security offerings and successful large platform deals.

However, there are some concerns regarding the decline in QRadar SaaS ARR and slight gross margin pressure.

Palo Alto Networks (PANW) Guidance To Focus On Its NGS ARR

During the first quarter of fiscal year 2025, Palo Alto Networks reported strong financial results, exceeding expectations in several key metrics. The company's Next-Generation Security Annual Recurring Revenue (NGS ARR) grew by 40% to $4.5 billion, driven in part by a one-time increase from an IBM deal. Total revenue was reported at $2.14 billion, marking a 14% year-over-year increase, with product revenue growing by 4% and services revenue by 16%.

Operating margin expanded by 60 basis points, contributing to a 13% growth in earnings per share (EPS). The company also reported a 20% growth in total Remaining Performance Obligation (RPO) to $12.6 billion. Looking forward, Palo Alto Networks raised its full-year guidance for NGS ARR, revenue, and EPS, projecting NGS ARR to reach between $5.52 billion and $5.57 billion, representing a 31% to 32% increase. Additionally, the company announced a 2-for-1 stock split to enhance accessibility for employees and investors.

Palo Alto Networks beat analysts’ revenue expectations by 0.9% last quarter, reporting revenues of $2.14 billion, up 13.9% year on year. It was a strong quarter for the company, with EPS guidance for next quarter exceeding analysts’ expectations and an impressive beat of analysts’ EBITDA estimates.

So investors might be looking for stronger revenue expectations and the guidance for NGS ARR for 2025 would need to be better than 2024. Any slight decline might cause some volatility to PANW’s share price.

QRadar SaaS Decline In Revenue Might Be A Concern Despite Stronger NGS ARR Expected

PANW has a strong start to its fiscal 2025 when in fiscal Q1 2025, its NGS ARR grew 40% to $4.5 billion, and operating margin expanded by 60 basis points year-over-year. EPS grew by 13%, showing strong profitability.

But we need to understand also while QRadar SaaS added $74 million in NGS ARR, but this is expected to decline to half by Q4 as customers are upgraded to XSIAM.

But PANW could still take some significant growth on NGS ARR due to Cortex and NetSec, hence we could be expecting a strong NGS offerings performance. Cortex crossed the $1 billion ARR milestone in Q1, with strong momentum across its offerings, this might exceed the previous record in Q1.

More Larger Platform Deals Expected

In fiscal Q1 2025, 305 transactions over $1 million, up 13%, and 60 transactions over $5 million, up 30% this quarter. I am expecting PANW to have more larger platform deals as more and more organization are into larger AI infrastructure build, and security have been a key point in AI deployment.

SASE customers grew 20%, with 40% being new to Palo Alto Networks. I would think more new customers from SASE would be onboarding.

Despite this, in Q1, gross margin was slightly down due to some new SaaS offerings not yet scaling. Hopefully these new SaaS offerings are able to scale.

Technical Analysis - Exponential Moving Average (EMA)

I think PANW is in a good position to benefit from the AI drive, as more organization would be looking for a total solution for security and more and more workloads are running on cloud for inference.

PANW have this advantage, so I would expect a nice gap up if the ARR and RPO improve for PANW, and also the outlook guidance for 2025 would be much better than 2024, currently PANW is trading above the 12-EMA, so I think we should be seeing an attempt by the bulls to try to push for a daily uptrend expansions.

And if there is any less-than-expected in terms of ARR or RPO, or the outlook for PANW products and services does fall below expectations we could be seeing PANW moving back down to 190 level.

I will be watching this stock closely as I have some positions in another brokers, so I will see if can add more shares.

Summary

I think PANW should be benefitting from the AI boom as we have seen how $Cisco(CSCO)$ have managed to see their networking gear demand get boosted.

There should be more data center demand and hence large platform deals for PANW would be growing well.

Appreciate if you could share your thoughts in the comment section whether you think PANW could provide an earnings surprise with record ARR and RPO.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.