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Palo Alto Networks (PANW +7%) is trading nicely higher after reporting Q4 (Jul) results last night. The cybersecurity giant returned to its pattern of double-digit EPS beats after a rare dip below that level in Q3 (Apr). Revenue rose 12.1% yr/yr to $2.19 bln, which was slightly better than analyst expectations. PANW also approved an additional $500 mln for share repurchases, increasing its remaining authorization to $1 bln.

• A big highlight of the quarter was the guidance. PANW has either guided EPS below or in-line with consensus in each of the past two quarters. As such, it was good to see the company provide good size EPS upside guidance for Q1 (Oct) with slight upside revenue guidance at the mid-point. We also got our first look at FY25 guidance. The mid-point of both EPS and revenue guidance was above analyst expectations. PANW is typically conservative with guidance, so this was encouraging to see.
• In its Supplemental Financials, PANW reported that billings grew 10.8% yr/yr to $3.50 bln, which was above prior guidance of $3.43-3.48 bln. However, with a new fiscal year, PANW made an important change in its reporting of metrics. PANW will no longer focus on billings. With higher rates, more clients are asking to spread payments over multiple years instead of an upfront payment. Also, PANW recently rolled out its platformization strategy. Both have made the billings metric more volatile.
• Going forward, PANW will focus more NGS (Next Generation Security) ARR and RPO. In Q4, NGS ARR grew 43% yr/yr to $4.2 bln while RPO grew 20% yr/yr to $12.7 bln. In terms of geographies, PANW saw revenue growth across all regions, with the Americas growing 11%, EMEA up 14% and JPAC 15%.
• PANW firmly believes that the answer to keep up with security threats is platformization of cybersecurity over time. PANW concedes there was significant consternation around its platformization strategy six months ago. However, now PANW wishes it had started down this path sooner. After a strong addition of 65 new platformizations in Q3, PANW added over 90 in Q4, and now has well over 1,000 total platformizations among its 5,000 largest customers. The important thing here is that as PANW converts customers to platform customers and single platform customers to multi-platform customers, PANW sees an uplift in ARR.

Clearly, investors impressed with how PANW closed out FY24. What stands out to us is the bullish guidance, especially for Q1 but also for FY25. The company talked a lot on the call how its platformization is driving results and boosting ARR. PANW saw an acceleration in 2H driven by demand for platformization, which is broadening and strengthening as it closed FY24. The investor concerns about this shift to platformization seem to be subsiding. Also, management has been notably more bullish on the last two earnings calls after talking about spending fatigue by some customers on its Q2 call.