SANTA CLARA, California – Cybersecurity company Palo Alto Networks Inc. experienced a significant drop in late trading after revising its revenue forecast for the year, raising concerns about potential cutbacks in tech spending by customers.
The company announced on Tuesday that it anticipates sales of $7.95 billion to $8 billion for the fiscal year, a decrease from its previous projection of up to $8.2 billion. The lowered forecast, coupled with analysts’ estimates of $8.18 billion, suggests that customers may be scaling back their tech spending.
Despite maintaining its outlook for earnings and free cash flow for fiscal 2024, Palo Alto Networks’ revenue forecast indicates a potential slowdown in sales growth, well below the company’s 25%-plus growth rate in recent years.
On a conference call, Chief Executive Officer Nikesh Arora acknowledged that customers are experiencing “spending fatigue” in the cybersecurity sector. He noted that customers are finding that adding more products does not necessarily lead to better security outcomes.
The stock fell as much as 21% in extended trading following the earnings report, impacting the shares of other cybersecurity companies as well.
Palo Alto Networks experienced an increase in product revenue, albeit at a slower rate than service and support sales. The company also reported a 19% year-over-year sales growth, with billings estimated to reach as high as $10.2 billion, down from the previous range of up to $10.8 billion. Additionally, the company aims to generate $15 billion annually from its next-generation security by fiscal 2030.
CEO Arora attributed the softer spending by federal customers to the failure of a planned government program. However, he expressed optimism about growth potential from the increasing demand for securing the responsible deployment of artificial intelligence in infrastructure.
The company’s stock performance in 2024 has sparked significant interest, outperforming most tech stocks and showing promise for continued success in the cybersecurity sector.