Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Palo Alto Networks Inc (PANW)’s Steadily Gaining Respect

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.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.