Palo had a horrible drop of about 30%, or $100 from yesterday’s close of $365 to about $265 today, most of the damage happening after hours after weak revenue guidance. Markets punishing the stock for 15-16% growth forecasted instead of the earlier guidance of 19%.
Sales forecast for the year ending July 2024, is now expected to grow only 16% between $7.95B and $8B, down from a prior view of $8.15B to $8.2B. Also Street estimates FYJuly 2025 are about 9.22Bn, implying a revenue growth of just 15% – another slow year.
How did this happen – Billings growth faltered dropping some $0.8Bn as Palo couldn’t a) close on Federal contracts b) extended discounts by allowing 3-6 months free usage before billing commenced.
A drop of 3% annualized revenue growth with a sales multiple in excess of 18x is a tough pill to swallow for a company that is still not GAAP profitable – analysts downgrades followed this morning as expected.
What’s next after the finger-pointing – analysts not diligent enough with primary research, checking with customers management not nimble enough to manage expectations, or both?
CEO Nikesh Arora was right, in my opinion of discounted selling and free usage to sign new contracts, it’s a delay and a small price to pay upfront than to lose contracts – share price be damned, share prices usually come back.
On 2/13 I recommended selling Palo as profit-taking and subsequently sold 15% of my holding at $365. But after this, it becomes a “Show Me” story and I’ll wait.
