Key-linked cyber firm’s shares take hammering
NYSE-listed Palo Alto stocks dive 11% after soft guidance
US cybersecurity giant Palo Alto Networks — which appointed Sir John Key to its board in June — has been thumped on the New York Stock Exchange this week.
After the market closed on Monday, the company reported a net loss that nearly doubled to US$59.6 million on revenue that rose 18 per cent to US$771.9m ($1.2b) for the three months to September 30 (the first quarter of its new financial year).
The numbers were slightly above analyst consensus, but Palo Alto Networks also issued weaker guidance than expected and its shares dived 11 per cent to US$220.37 on Tuesday, then as low as US$214.90 in the Wednesday (yesterday NZT) session before recovering to finish flat.
The company’s products unit, which sells firewalls and threat detection and prevention software, has come under pressure as more customers switch to the cloud, according to JP Morgan and Morning Star analysis.
The quarter will leave investors “feeling uneasy about the health of network security, demand for cybersecurity, and where we are in the shift to the cloud,” JP Morgan analyst Sterling Auty said in a post-earnings note.
Palo Alto Networks has also been in the news over executive compensation — another issue for Key to grapple with, if not until later in the financial year.
The company has a market cap of US$21.4b — huge by NZ standards — but far from the top 10 in the US. Rival Cisco is valued at US$192b and top two Apple ( US$1.19t) and Microsoft (US$1.15t) teeter over the trillion mark.
But its chairman and chief executive Nikesh Arora did make top 10 lists for compensation last year as his remuneration totalled US$125m.
Bloomberg ranked Arora at number five on its list of the Highest Paid CEOs and Executives in 2018, behind only Tesla’s Elon Musk, Tilray’s Brendan Kennedy, Disney’s Bob Iger and Apple’s Tim Cook — despite his company’s 2018 revenue (US$2.3b) being a fraction of others in the top five, hot medical cannabis startup Tilray aside.
And the Wall Street Journal noted that Arora’s pay packet would be enough to make him the secondhighest paid CEO of an S&P500 company — or would have been, if Palo Alto Networks had made that index.
The bulk of Arora’s US$130.7m remuneration was in stock awards and option awards.
Palo Alto Networks’ board was also handsomely rewarded last year. In its 2018 report, Palo Alto Networks lists stock awards to each director worth between US$320,000 and US$1m.
The Financial Times tempered talk about out-size compensation, noting that beyond his US$2m base annual package, Arora’s remuneration is largely in script that he can only fully realise if he increases Palo Alto Networks’ share price by 300 per cent within seven years — but even so it noted he had the potential to out-earn the leaders of Apple and Google.
It’s not all bad news. Palo Alto Networks was in the black, on a nonGAAP basis, excluding one-off charges.
The company has US$3.3b in the bank.
Despite its swoon this week, the company’s stock is still up 26 per cent for the year.
It has made a number of acquisitions to fill out its product portfolio, including a US$150m cash deal to buy Aporeto — a maker of identity software for cloud security — announced on Monday. Analysts expect more to follow.
And Palo Alto Networks is also pushing its own cloud product, Prisma, announced in May.
The Silicon Valley-based multinational recently appointed its first country manager here, Misti Landtroop.
Landtroop told the Herald that Palo Alto Networks had doubled the size of its Wellington team and was working with government clients, among others.