Investors got seriously spooked back in February 2024 when Palo Alto Networks (PANW:NASDAQ) lowered revenue and billings guidance for fiscal year 2024 (to 31 May), causing analysts to lower forecasts and price targets. 

Palo Alto stock tanked, losing nearly 30% in a day, a savage reckoning after running hot since the start of 2023. That’s been a problem. Equity markets can get carried away when a stock keeps shooting the lights out, and it doesn’t take much to send the bulls scurrying for safety.

It is not that the guidance was terrible. Palo Alto reported second quarter revenue up 19% year-on-year at $2 billion, with net income surging from $0.3 billion to $0.5 billion. Where the cybersecurity company came unstuck was with soggy guidance, expecting billing for fiscal 2024 to be in the range of $10.1 billion to $10.2 billion, down on the previous $10.7 billion to $10.8 billion range.

The revenue forecast was lowered from between $8.15 billion and $8.2 billion to $7.95 billion and $8 billion.

The company has been shaking up its product offering and is incentivising customers by offering them ‘no-cost’ periods until their legacy product contracts expire and shifts in strategy are seldom pain-free.

Which means third quarter earnings, due 20 May, will get plenty of market attention. Consensus is pitched at $1.25 per share of earnings on $1.97 billion revenue, which would be solid double-digit year-on-year growth. But any hint of a further weakening in the trading environment could see the stock hung out to dry again.

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20 May: Palo Alto Networks

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