Stock fell close to 20.0% in May
Palo Alto Networks (PANW) stock fell close to 20.0% last month. What drove this decline? While the broader market’s weakness was driven by trade war escalations, PANW was affected even more after it announced its third-quarter results.
The stock fell after several analysts cut its price target. Analysts were concerned about Palo Alto Networks’ transition to cloud-based subscriptions, which could lead to a delay in billings and affect its cash flows. However, investors should be unconcerned, as this transition will have only a temporary effect on the company’s financials.
A subscription-based model means revenue will be realized annually rather than up front. In the third quarter, PANW’s billings rose 13.0% year-over-year to $821.9 million, well below analysts’ estimate of $872.6 million.
Nick Yalo, an analyst from Cowen, expects the transition to cloud offerings to affect the company’s metrics and lower its 12-month stock price from $230 to $205.
Acquisitions will affect Palo Alto Networks’ bottom line
PANW also announced the acquisitions of PureSec and Twistlock during its third-quarter earnings call. PANW’s CFO, Kathy Bonanno, stated that these acquisitions would lower the company’s earnings. PANW also stated that tariffs on China would reduce its bottom line by $0.02 in the fourth quarter.
While PANW expects EPS of $1.55 in the fourth quarter, analysts expect its EPS to be $1.42.