Palo Alto Networks’ shares plunge on outlook - but firm sees AI gains ahead, Key sells shares

Palo Alto Networks NZ managing director Misti Landtroop, Sir John Key and Palo Alto regional VP Steve Manley at an Auckland City Mission fundraiser in 2019 - the year the ex-PM joined the Silicon Valley-based tech giant. Key currently holds stock in the firm worth around US$5.4 million, thanks to strong results that saw the firm's shares more than double in value over the past year.

Palo Alto Networks - the tech giant that numbers Sir John Key among its directors - bet expectations for its second quarter as revenue rose 19 per cent to US$1.96 billion ($3.2b) for the three months to December 31.

But the Silicon Valley-based cybersecurity firm saw its shares plunge by as much as 19 per cent in extended Nasdaq trading after it lowered its full-year billings guidance from US$10.7-10.8b to US$10.1-$10.2b and lowered its earnings outlook.

The fall was relative; Palo Alto’s shares had more than doubled over the preceding 12 months, taking its market cap to US$115b.

In a conference call with analysts, chief executive Nikesh Arora said the lowered forecast was due to a “shift” in strategy, “wanting to accelerate growth, our platform migration and consolidation and activating AI leadership”.

The firm’s investor presentation, citing Gartner research, said US$300b would be spent on AI software by 2027.

Palo Alto saw a “US$13-17b opportunity for us as our user base doubles in the next five years” as “large enterprises struggle with employees accessing AI in an insecure manner” and big firms seek to secure AI apps from attack in real-time.

Already, the firm had seen phishing emails increase tenfold over the past 12 months, driven by AI and “nation-states attempting to use AI for attacks”.

Key sells shares

Meanwhile, a December 18, 2023 filing revealed Key had sold 2297 Palo Alto shares at US$308.74 each, implying the ex-PM would have realised US$709,106 ($1.16 million) from the sale.

The transaction said that following the sale, Key owned 14,802 shares, worth US$5.4m at Tuesday’s closing price of US$366.09.

Key was granted US$380,000 in stock awards in FY2023, according to the company’s annual report, and sat on three board committees: audit (with a US$20,000 retainer), compensation (US$25,000) and security (US$50,000).

The NZ taxpayer is also onboard. In a December 31, 2023 disclosure, the NZ Super Fund said it held 73,647 Palo Alto shares, worth $34.3m.

Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.