Palo Alto Networks Falls After Missing Sales Forecast

Palo Alto Networks Inc. (PANW) posted a record decline after the maker of network security systems issued a revenue forecast short of analysts’ estimates.

The shares dropped 11 percent to $48.52 at the close in New York, the steepest slump since the company’s initial public offering in July 2012. The stock has advanced 16 percent since going public.

Revenue in the fiscal fourth quarter ending in July will be $106 million to $110 million, the Santa Clara, California-based company said on a call yesterday, missing the average projection for $113.7 million, according to data compiled by Bloomberg.

Third-quarter sales also lagged analysts’ predictions, the first time Palo Alto has missed revenue estimates since selling shares to the public in July. The company blamed “challenging” economic conditions for a shortfall in Europe and among government clients. Daniel Cummins, an analyst at B. Riley & Co. in New York, estimates that the federal government accounts for as much as 10 percent of Palo Alto’s revenue, while the European region comprises 20 percent to 25 percent.

“To come in at the low end of the guidance range is kind of a recipe for a one-day disaster for the stock,” said Cummins, who recommends buying the shares. Still, “most of us would expect that this won’t be repeated,” he said.

Palo Alto, co-founded in 2005 by former Check Point Software Technologies Ltd. (CHKP) executive Nir Zuk, is going head-to-head in the network-security market with Check Point, Cisco Systems Inc. (CSCO) and Juniper Networks Inc. (JNPR) Palo Alto’s revenue is rising faster than rivals as businesses seek to protect themselves from sophisticated hacking attacks that older security technologies have struggled to stop.

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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