What Palo Alto Networks' Ambitious 3-Year Plan Doesn't Tell You

During its fiscal first-quarter earnings call, Palo Alto Networks' (NYSE: PANW) management confirmed the company was on track to deliver according to its three-year plan it outlined a few months ago. Executives expect revenue will grow 20% annually while generating $4 billion in adjusted free cash flow during this time frame, which is impressive. But these long-term goals aren't representative of the cybersecurity specialist's performance.

Despite the weakness in Palo Alto's product segment, which includes its appliances such as firewalls, the company's fiscal first-quarter revenue of $771.9 million, up 17.7% year over year, came in slightly above guidance. Non-GAAP (adjusted) EPS of $1.05 also beat expectations.

The better-than-expected results were due to the strong growth of Palo Alto's subscription and support segment, which includes its cloud-based solutions. Management indicated the underwhelming performance of the product segment was related to the incentives for its sales force and partners to prioritize solutions such as Cortex and Prisma instead of appliances. Since executives indicated this issue was solved, investors should pay attention to product revenue growth over the next few quarters to confirm this underperformance was temporary.

Source Fool.com