Palo Alto Networks PANW delivered second-quarter fiscal 2025 non-GAAP earnings of 81 cents per share, which surpassed the Zacks Consensus Estimate by 3.8%. The figure improved 11% year over year.

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Palo Alto’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with an average surprise of 5.5%.

PANW’s second-quarter fiscal 2025 revenues of $2.26 billion beat the Zacks Consensus Estimate by 0.91% and came marginally higher than management’s guidance of $2.22 billion and $2.25 billion.

The top line rose 14.3% year over year, driven by an impressive performance across its segments. Additionally, the growing adoption of PANW’s Next-Generation Security platforms, driven by the hybrid work culture and a robust need for stronger security, also boosted second-quarter fiscal 2025 results.

Palo Alto’s impressive second-quarter results complemented by its strong market presence compelled it to raise guidance for full-year 2025. Better-than-expected fiscal second-quarter results, along with an optimistic outlook, are expected to pull up its shares. Shares of PANW have risen 6.6% in the past year compared with the Zacks Internet – Software industry’s return of 30.8%.

Palo Alto’s Q2 2025 Details

PANW’s strong top-line performance can be attributed to the immense year-over-year rise in its Subscription & Support revenues backed by a modest increase in its Product revenues.

Product revenues increased 7.9% year over year to $421.5 million and contributed to 18.7% of the total revenues. The company’s Subscription and Support revenues, which accounted for 81.3% of the total revenues, improved 15.9% to $1.84 billion.

Deferred revenues at the end of the fiscal second quarter were $5.6 billion. Palo Alto’s remaining performance obligation climbed to $13 billion, reflecting a year-over-year increase of 21%.

Palo Alto’s next-generation security annualized recurring revenues were $4.8 billion in the reported quarter, which grew 37% year over year and 6.7% from the previous quarter.

Non-GAAP gross profits increased 12.2% to $1.728 billion. The non-GAAP gross margin contracted 140 basis points (bps) to 76.6%. The non-GAAP operating income rose 16.4% to $640.4 million. Meanwhile, the non-GAAP operating margin contracted 20 bps to 28.4% compared with the year-ago quarter.

PANW’s Balance Sheet & Cash Flow

Palo Alto had cash and cash equivalents and short-term investments of $2.23 billion as of Jan. 31, 2025, compared with $3.4 billion as of Oct. 31, 2024.

PANW generated an operating cash flow of $557 million and a non-GAAP adjusted free cash flow of $509.4 million in the second quarter of fiscal 2025.

Palo Alto Raises FY25 Guidance

For fiscal 2025, Palo Alto expects revenues between $9.14 billion and $9.19 billion, up from the earlier projected range of $9.12-$9.17 billion. The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $9.15 billion, indicating a rise of 13.9%. Remaining Performance Obligation is still projected in the range of $15.2-$15.3 billion. Next-Gen Security ARR is still estimated in the band of $5.52-$5.57 billion.

PANW’s fiscal 2025 non-GAAP operating margin is now projected in the range of 28-28.5%, up from the previous guidance of 27.5-28%. Its adjusted free cash flow margin is still estimated in the range of 37-38%. The company expects non-GAAP earnings per share in the range of $3.18-$3.24. After a two-for-one stock split of PANW stocks on Nov. 20, 2024, the outstanding share count is in the band of 700 million to 708 million. The consensus mark for fiscal 2025 earnings is pinned at $3.17 per share, suggesting an improvement of 11.6%. The figure remained unchanged over the past 60 days.

For the third quarter of fiscal 2025, PANW projects revenues between $2.26 billion and $2.29 billion, which suggests year-over-year growth of 14-15%. The Zacks Consensus Estimate for third-quarter fiscal 2025 revenues is pegged at $2.27 billion, indicating a rise of 14.2%. Remaining Performance Obligations are anticipated between $13.5 billion and $13.6 billion. Next-Gen Security ARR is expected in the band of $5.03-$5.08 billion.

Non-GAAP earnings are projected in the range of 76-77 cents per share. The Zacks Consensus Estimate for non-GAAP earnings is pegged at 76 cents per share, unchanged over the past 60 days, indicating a year-over-year improvement of 15.2%.

Zacks Rank and Stocks to Consider

Currently, Tyler carries a Zacks Rank #3 (Hold).

Celestica CLS, CrowdStrike CRWD and Akamai Technology AKAM are some better-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector. While CLS sports Zacks Rank #1 (Strong Buy), CRWD and AKAM carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus mark for CLS’ 2025 earnings has been revised upward by 31 cents to $4.75 per share over the past 30 days, indicating a 22.4% year-over-year increase. CLS shares have risen 244.8% in the past year.

The consensus mark for CRWD’s 2025 earnings has been revised upward by a penny to $3.74 per share over the past 60 days, indicating a 21% year-over-year increase. CRWD shares have gained 35.3% in the past year.

The consensus mark for AKAM’s 2025 earnings has been revised upward by 3 cents to $6.76 per share over the past 60 days, indicating a 6.78% year-over-year decline. AKAM shares have declined 11.9% in the past year.

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