AI presents a massive opportunity for Palo Alto Networks, the company said.

Edward Gately, Senior News Editor

February 21, 2024

3 Min Read
Palo Alto Networks stock falls
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Palo Alto Networks’ stock price plunged 19% in after-hours trading Tuesday after the company reported its second-quarter results. And it didn't get any better on Wednesday, down 28% overall as of 3:08 p.m. ET.

The drop resulted from weaker-than-expected guidance for the security giant’s full fiscal 2024. For the full year, it anticipates revenue will total between $7.95 billion and $8 billion, falling below Wall Street’s expectations for $8.18 billion. That prompted the massive stock drop.

“Our guidance is a consequence of us driving a shift in our strategy in wanting to accelerate both our platformization, and consolidation, and activating our artificial intelligence (AI) leadership,” said Nikesh Arora, Palo Alto Networks’ chairman and CEO. “We believe this is the time for us to invest, given our leadership position in the market and our leadership position across platformization and consolidation.”

Palo Alto Networks' Nikesh Arora

For the quarter, Palo Alto Networks’ revenue grew 19%, to $1.98 billion. Product revenue grew 11%, while total service revenue was up 22%, with subscription revenue growing 26% and support revenue up 14%.

Profit was $1.7 billion, way up from $84 million for the year-ago quarter.

Palo Alto Networks saw consistent revenue growth across all of its regions, with the Americas growing 19%, EMEA up 19% and JPAC also growing 19%.

Palo Alto Networks Sees Significant Drop in Federal Government Business

Palo Alto Networks saw "softness" in the U.S. federal government market, Arora said.

“We were positioned well for several large projects where we had requisite certifications and one technical selection, but these deals did not close,” he said. “The situation started off toward the end of Q1. We were worsened in Q2, and as a result, we had a significant shortfall in our U.S. federal government business. We expect this trend will continue into our Q3 and Q4. Offsetting the billing weakness in fed was some non-product backlog that we shipped this quarter.”

AI is going to be “one of the biggest inflection points in technology in over a decade," Arora said.

Looking forward, Palo Alto Networks has aggressive plans to roll out additional AI-based offerings by the end of this fiscal year.

“We currently secure north of 100 million users, and their access to applications both in the public cloud and in the data center,” he said. “We expect each of these users is an opportunity for us to deliver an AI security subscription for them. It leaves us a $3 billion to $5 billion opportunity over the next five years.”

Secondly, organizations are increasingly deploying AI-related workloads in the cloud, and just as they need to understand the overall security posture of the cloud estate and expeditiously identify immediate issues, they must also do this for AI-related workloads, Arora said.

“We believe this in itself is a $5 billion-$6 billion opportunity in the next five years," he said. "Lastly, network traffic will increasingly have an AI context with interactions and transactions between applications and AI models.”

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About the Author(s)

Edward Gately

Senior News Editor, Channel Futures

As news editor, Edward Gately covers cybersecurity, new channel programs and program changes, M&A and other IT channel trends. Prior to Informa, he spent 26 years as a newspaper journalist in Texas, Louisiana and Arizona.

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