Palo Alto Q1 FY7/26 Earnings Review

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Gearing Up (or Gearing Down?)

By Hermit Warrior, a.k.a Richard Iacuelli

Welcome to the new sleeker, easier to read format for our earnings reviews which we'll be using for selected names. The aim is to make the important points 'pop out', with an easier read - and we're dragging ourselves firmly into the AI-augmented (not replacement) age with a new 'AI Insights' section. All feedback - good, bad, or just meh - is always welcome!

House View

Gearing up, or gearing down, choose your own analogy but it's clear that Palo Alto Networks, ($PANW) is not settling into cruise control. Acquisitions adding capabilities around Identity Management (through CyberArk, $CYBR) and Observability, (through Chronosphere, announced with Q1 earnings) are setting the scene for the next phase of growth - and spurring an ambitious upgrade to their growth targets, something the market may not have fully appreciated given the knock the stock took immediately after earnings. In the short term, revenue growth may be plateauing, with the Q2 guide well below the 16% growth achieved in Q1, however those new growth ambitions also mean the promise of faster revenue growth to come. 

Here are the headlines.

Analyst Insights -

Growth:

• Q1 revenue growth of 16% year on year beat the 15% guide but less convincingly than in the previous quarter (16% in Q4 vs 14% guide).
• The guide for Q2 of 14% revenue growth marks a potential slow-down, and likely contributed to the post-earnings knock.
• Remaining Performance Obligations (RPO) growth ticked down slightly to 23%, from 24% (based on their 10-Q/10-K figures, so rounding errors could explain the 24% on their slides), but is still stronger than in any quarter going back to Q1'24. 
• Next Generation Security [NGS] Annual Recurring Revenue [ARR] is a favored performance metric, and underpins how PANW measure their success in growing the business, so it's worth understanding how it's made up - especially given future revenue from the CYBR and Chronosphere acquisitions will fall under this grouping.