Palo Alto Networks (NASDAQ:PANW), a leader in cybersecurity, jumped 9% overnight after PANW stock announced an earnings beat estimates and the company announced a new acquisition.
Palo Alto earned $20 million, six cents per share fully diluted, on revenue of $1.56 billion for the three months ending in October. Revenue grew 25% and billings 27% over the previous year. For the full year, the company expects revenue of $6.83-6.91 billion, non-GAAP net income of $3.37-3.44 per share, and an adjusted free cash flow margin of about 35%.
The stock was due to open at about $171/share, a market capitalization of about $51 billion. For 2022 Palo Alto stock is down 15%, slightly less than the average S&P 500 stock.
Cyber Buys Cider
The bigger news may be Palo Alto’s purchase of Cider Security, which specializes in application security and software supply chain security. This matters as corporate software stacks grow more complex, with open-source software obtained under a variety of licensing schemes, all of which must be managed.
Palo Alto is paying $195 million in cash for Cider, which will be integrated into Palo Alto’s Prisma Cloud. To keep Cider’s best people on the job there are replacement equity awards that could bring the deal value to $300 million.
I am a longtime fan of Palo Alto. Leadership costs money, and Palo Alto must often invest ahead of growth, leading to net losses.
Rapid change also means leaders constantly face new challengers with new approaches to problems. In the case of Palo Alto, this includes Wiz Security, an Israeli company.
The 2022 market sent Palo Alto stock down on a relative basis, to seven times revenue from 10. Palo Alto also has strong leadership in Nikesh Arora, formerly the number two man at Softbank (OTCMKTS:SFTBY).
PANW Stock: What Happens Next?
In 2022, even the best tech companies are subject to the gravity of valuation. Palo Alto traded near $210/share earlier this year. While the stock has fallen, there has been no change in its competitive position. That’s what investors must be on a constant lookout for.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.