Is Palo Alto Networks stock a buy after earnings beat?

Key points

• Palo Alto Networks stock jumped 9% on Tuesday after releasing earnings.

• The cybersecurity leader got a boost from a new strategy it launched earlier this year.

• Is Palo Alto Networks stock a buy?

The cybersecurity firm had a huge quarter, fueled by a new “platformization” strategy.

Palo Alto Networks (NASDAQ: PANW) stock was soaring on Tuesday after the tech company posted strong earnings for its fiscal fourth quarter.

The provider of cybersecurity software and solutions saw its stock price jump about 9% on Tuesday to roughly $373 per share.

The firm easily beat analysts’ estimates for the quarter, generating $2.2 billion in revenue, up 12% year over year and ahead of $2.16 billion revenue estimates.

Net income skyrocketed to $358 million, or $1.10 per share, up 57% compared to the same quarter a year. Adjusted earnings were $1.51 per share, 7% better than estimates of $1.41 earnings per share.

“Platformization” strategy drives revenue

Cybersecurity is a growth business, as cybercrime and incidents are on the rise, and show no signs of slowing down. As one of the leaders in cybersecurity for businesses, Palo Alto Networks is well positioned to capitalize on this trend.

In the quarter, Palo Alto Networks got a huge lift from its subscription and support services arm, through which it offers cloud-based cybersecurity software and support. Revenue in this segment jumped 18% year over year and accounted for 78% of the company’s overall revenue. This offset a 5% revenue decline in the smaller products division.

Palo Alto Networks Chairman and CEO Nikesh Arora attributed the success to the company’s platform consolidation or “platformization” strategy, as he calls it, which is bundling all of its products and services for use by clients, as opposed to selling one-off services.

“I know there was significant consternation around our platformization strategy six months ago,” Arora said on the Q4 earnings call. “All I want to say is, I wish we had started down that path sooner. The amount of interest and activity around it has certainly been hardening and shows promise. After a strong addition of approximately 65 new platformizations in Q3, we added over 90 new platformizations in Q4, now have well over 1,000 total platformizations among our 5,000 largest customers as we exit FY ’24.”

The strategy also helped drive higher ARR, or annual recurring revenue, for its Next Generation Security offerings some 43% higher in the quarter.

“We saw a sequential increase in average ARR per platformized customer in Q4,” the CEO said on the call. “For perspective, our average ARR per platformization is up over 10% since Q1. This effectively means as we convert our customers to platform customers and single platform customers to multi-platform customers, we see an uplift in ARR.”

Growth outlook for 2025

As this was the company’s fiscal fourth quarter, Palo Alto Networks offered its outlook for fiscal 2025. The company calls for annual revenue in the range of $9.1 billion to $9.15 billion, which would be a 13% to 14% increase over fiscal 2024

Further, adjusted net income per share is expected to be in the range of $6.18 to $6.31 – a 9% to 11% increase over the previous year. Meanwhile, the adjusted operating margin is targeted at 27.5% to 28.0%, up from 27.3% in 2024. Also, its free cash flow margin, which is the amount of revenue converted into free cash, is projected be between 37% and 38%, a solid number that speaks to its efficiency.

In addition, the company authorized another $500 million in share repurchases, on top of the $500 million that’s already been authorized, through Dec. 31, 2025.

Is Palo Alto Networks stock a buy?

Wall Street analysts are generally bullish on Palo Alto Networks stock after the earnings report, as it got a slew of price target upgrades across the board, including a $50 per share bump from Cantor Fitzgerald to $400 per share.

In addition, RBC and Oppenheimer raised their targets to $410, which would be a 10% increase over the current $373 share price.

Palo Alto Network stock is already up 29% YTD, so the question is, does it have more room to run?

The stock has gotten a little pricey, trading at 46 times earnings, so I would keep an eye on the valuation. But based on its growth outlook, its efficiency, and its status as a leader in a growing industry, Palo Alto Networks stock is a long-term winner, but it may be better to buy on a dip, not this surge today.