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Palo Alto Networks Hits the Cellar

The company could feel the pressures from lower IT spending


Next-gen security provider Palo Alto Networks (NYSE:PANW) has watched investor enthusiasm subside since its red-hot IPO back in mid-July, with the stock falling from nearly $72 in September to all-time lows under $50 today following its Thursday reporting of quarterly earnings.

Palo Alto still is growing like a weed. In the latest quarter, revenue surged by 50% to $85.9 million, which topped estimates; adjusted earnings of 4 cents a share also beat expectations, though the company did post a net loss of $3.5 million.

And as for the next quarter, Palo Alto forecasts revenues of $90 million to $94 million and earnings of 4 cents a share; the consensus was for a respective $90.7 million and 4 cents.

Palo Alto’s technology helps to deal with new security threats from mobile apps, social media, virtualization and cloud software. The market is getting more competitive, with new offerings coming from rivals like Check Point Software (NASDAQ:CHKP), Juniper Networks (NYSE:JNPR) and Cisco (NASDAQ:CSCO).

But perhaps the biggest concern is the overall IT spending environment, which appears to be slowing down. Yes, security software is a higher-priority item, but it still could feel some pressures — which might explain why Palo Alto’s shares are off about 3% in today’s trading, despite a fairly solid earnings report.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.”  Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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