Shares of Palo Alto Networks Inc (NYSE:PANW) were trading down 4% on Friday following the company’s second-quarter earnings report. Although the network security company beat consensus estimates, the market didn’t like the company’s forecast for this current quarter, even though it was in line with estimates. But the Street had already received guidance from rivals like Cisco Systems, Inc. (NASDAQ:CSCO) and Check Point Software Technologies Ltd. (NASDAQ:CHKP) , which weren’t any better. Fairly or unfairly, this is the plight of momentum growth stories like Palo Alto Networks Inc (NYSE:PANW) — where it’s always about the next quarter.
Another dominant performance
Downbeat guidance or not, the company delivered the goods. And speaking of momentum, there’s not much more a company can do than 70% year-over-year revenue growth. Palo Alto Networks Inc (NYSE:PANW) posted sales of $96.5 million, which topped Street estimates of $93.3 million. Product revenue soared 60% year over year and advance 12% sequentially. Service revenue, which accounts for 36% of total revenue, was the story — jumping 91% year over year and 13.5% sequentially.
What’s more, the company added an additional 1,000 new customers in the quarter, which brings its total to 11,000.This tells me that Palo Alto Networks Inc (NYSE:PANW) is significantly outperforming Cisco in some very important areas, particularly in security services, where Cisco posted just 1% revenue growth. However, Palo Alto Networks Inc (NYSE:PANW) is not making this easy. For that matter, it is outperforming market leader Check Point, which just grew just 3%. While Check Point cited (among other things) weak European demand for its struggles, Palo Alto posted 25% growth in international markets.
The company also posted year-over-year and sequential growth in all geographic markets. Equally important, even though the Palo Alto is not as big as Cisco or Check Point, a 92% jump in deferred revenue means that Palo Alto has been aggressive. Likewise, that billings surged 81% year over year and 12% sequentially means that Palo Alto is not feeling the sort of macro or pricing pressure that young companies are normally subjected to.
Still building infrastructure
In that regard, there were strong improvements in profitability, with yet some opportunities. Non-GAAP gross margin of 72.2% arrived in line with prior guidance. But gross margin was a bit soft — shedding 70 basis points year over year and 40 basis points sequentially. But I’m willing to excuse this. The company is fighting for position and market share, evidenced by the 14% increase in research and development expenses.