Here's What Deutsche Bank Liked And Disliked In Palo Alto's Disappointing Q1

Palo Alto Networks Inc PANW reported weaker than expected results for the second time in three quarters, despite out-growing its rivals.

Deutsche Bank’s Karl Keirstead maintains a Hold rating on the company, with a price target of $150.

Q1 Results

Palo Alto Networks reported revenues of $398 million for Q1, representing 34 percent year-on-year growth but missing the high end of the guidance for the first time in more than three years.

Product revenue grew 11 percent, missing the estimate, while billings of $517 million was below the estimate and the consensus. The company attributed the miss to delays in large enterprise deals.

“Non-GAAP OM, EPS and FCF were all in-line or slightly better than expected,” Keirstead mentioned.

The Positives

Palo Alto Networks reaffirmed its guidance for product revenue growth bottoming in Q2 FY 2017.

The long-term DR growth was strong during Q1, growing 84 percent year-on-year and now accounting for 44 percent of the DR mix, which the analyst believes is “a sign that invoicing durations are not yet contracting.”

Although the FY 2017 revenue growth guidance of 30–31 percent was slight below consensus, the company is “at least” absorbing the decelerating and difficult firewall market, without modifying its earlier FY 2017 guidance.

The Negatives

On the other hand, Keirstead expressed concern regarding the meaningful deceleration in product revenue growth in Q1, along with the below consensus Q1 FY 2017 revenue guidance.

The analyst also pointed out that “the admission that customers are ‘working their way through’ prior purchases and considering ‘architectural changes’ makes it clear that the broader network firewall space is still slowing.”