By George Glover

Palo Alto Networks stock was sliding on Friday, but analysts remain upbeat about the cybersecurity company's strategy to offer some customers free products in a bid to boot out smaller vendors.

The shares slipped 4.5% to $192.81 in premarket trading. Futures tracking the benchmark S&P 500 index were down 0.1%.

Palo Alto reported its earnings for the fiscal second quarter, which ended Jan. 30, after Thursday's close. The results looked fine, but Wall Street clearly wanted more.

The company posted adjusted earnings of 81 cents per share on revenue of $2.26 billion, just about topping expectations. Analysts were forecasting earnings of 78 cents on revenue of $2.24 billion, according to FactSet data.

It was a similar story for Palo Alto's guidance. The cybersecurity provider expects to post an adjusted profit of between 76 cents and 77 cents a share for the three months ending April 30 -- pretty much in-line with expectations.

It looks like a classic case of investors getting overexcited about a stock, then finding themselves disappointed when earnings meet rather than beat expectations. The Street remains bullish -- per FactSet, 17 of the 55 analysts who cover the stock have raised their price targets since the earnings came out, and 72% have Buy ratings.

Stifel's Adam Borg, who rates Palo Alto as a Buy with a $225 target price that implies it can climb about 17%, said the company had "a good, not great quarter," adding that he wasn't surprised to see shares drop.

Borg added that he's still upbeat about the company's "platformization" push -- a strategy that has seen Palo Alto offer some customers free trials for its broader suite of products, in a bid to gobble up market share from smaller cybersecurity providers who offer more of a bespoke service.

Wedbush analyst Dan Ives, who rates the stock Outperform with a $225 12-month price target, is also upbeat on the strategy. He noted that the second-quarter earnings report showed an acceleration in platformization conversions, with the number of customers spending $10 million or more up 52% from a year ago.

"The seeds of growth are falling into place, as Palo Alto is in the driver's seat to gain market and mind share in the cyber security landscape," Ives added.

Palo Alto's latest results might have left investors feeling a little underwhelmed, but they won't matter much over the longer term if the company's platformization pivot pays off.

Write to George Glover at george.glover@dowjones.com

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February 14, 2025 08:22 ET (13:22 GMT)

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