Palo Alto Networks Inc. shares could possibly be headed for his or her worst day on file as Wall Street frets a couple of strategic pivot that’s anticipated to hit ends in the close to time period.
The inventory was off 24.7% in premarket buying and selling Wednesday after the corporate missed expectations with its outlook in gentle of a change in technique meant to get extra prospects to undertake a broader suite of its choices — a transfer that prompted a number of analysts to desert their bullish views on Palo Alto Networks shares
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If Wednesday’s premarket motion carried by way of to the shut, it could mark the worst one-day proportion drop for Palo Alto Networks in its historical past. The present file is a 24.2% plunge, which befell on March 1, 2017.
“Palo Alto Network’s shift towards platformization, consolidating point products onto one of their three platforms, raises concerns about the
potential for a slower path to achieving the company’s goals,” wrote Rosenblatt Securities analyst Catharine Trebnick. “This strategic move could have several near-term and mid-term impacts on stakeholders.”
Trebnick, who downgraded the inventory to impartial from purchase Wednesday, famous that the transfer might make channel companions pissed off “by having to sell more products within the same budget constraints.” Additionally, it might take time to coach the gross sales groups on the brand new messaging.
Meanwhile, Palo Alto Networks can be attempting to place itself extra as an artificial-intelligence chief however the “platform’s reliance on AI may necessitate higher investments, potentially impacting margins,” Trebnick continued, as she lower her worth goal to $265 from $290.
Piper Sandler’s Rob Owens additionally downgraded the inventory, writing that Palo Alto Networks was “creating a large degree of investor consternation” for the third consecutive quarter.
The firm “is the largest platform player in the segment and, in hopes to accelerate that positioning, will take an aggressive approach in offering free product with the promise of longer-term, platform contracts,” Owens defined. “This should negatively impact the business for 12-18 months — eliminating $600M from billings estimates in the back half of this year.”
While he continues to see long-term alternative for the corporate, Owens stated “the steps taken this quarter undoubtedly raise uncertainty in the narrative as execution risk is elevated under current plans.”
He moved to a impartial ranking on the inventory from his prior chubby stance, whereas slicing his goal worth to $300 from $350.
Guggenheim’s John DiFucci stated that 12 to 18 months is a very long time for traders to attend, and he argued that the time period “platformization,” when described, “sounds like what they’ve been doing all along,” with the exception being that Palo Alto Networks will now supply prospects a “bridge” as they add extra merchandise and transition away from legacy ones.
“We don’t blame PANW for doing whatever they believe is the right thing for the company over the long term,” DiFucci wrote, however he has questions on why “other companies embark on similar paths of consolidation without having to give away product for a time” and why Palo Alto Networks delivered this “major change on a quarterly conference call when results are weak,” moderately than six months again when the corporate hosted a Friday night earnings name.
DiFucci charges the inventory at impartial.
Raymond James analyst Adam Tindle stated he’ll “need evidence that this abrupt pivot is poised to yield acceleration,” in a observe to shoppers titled: “Yellow Flags Become Red.”
“While the stock is poised to be punished, and we are not dogmatic in our views, we struggle with the near/intermediate term investment case from here,” he wrote. “Consider, Palo is abruptly pushing a strategy whereby customers will receive free products for a commitment to consolidate on the platform, yet our downgrade cited general skepticism in the channel, and we doubt these partners will push a further consolidation with a vendor where they generally struggle with trust.”
At the identical time, he acknowledged that “a commitment to hold/improve profitability over this time may provide some downside support to the stock,” although he caught along with his market-perform ranking.
Evercore ISI’s Peter Levine, in the meantime, stated the inventory’s detrimental response was “unsurprising,” although he was staying bullish on the title.
Levine’s latest channel checks turned up “sufficient evidence to suggest that there is no demand problem, no underlying shift in the fundamentals, and no new emerging competitive concerns,” he wrote. “With no apparent demand deficit, we believe [management] has enough credibility to instill some confidence in their choice to sacrifice short-term rev to pursue a strategic shift aimed at positioning the company for [long-term] growth.”
He has an outperform ranking and a $405 goal worth on the shares.
Similarly, William Blair’s Jonathan Ho might see why traders could be fearful however stated the corporate’s pivot might create a “tectonic shift” within the cybersecurity market down the street.
“As Palo Alto gains scale, it will also have the ability to out-invest its competitors and have access to datasets across the security landscape that can serve as a sustainable competitive advantage,” he wrote.
Further, the transfer “could drive a potential consolidation wave in the space and place point solution vendors in a more precarious situation,” stated Ho, who charges the inventory at outperform.
Source web site: www.marketwatch.com
