What $PANW Earnings Teaches Public Company Executives
- stevenrubis
- Feb 21, 2024
- 2 min read
Capital Markets / Investor Relations in Two Minutes or Less
What $PANWs F2Q24 Teaches Public Company Executives
Guidance represents the most important variable management controls in order to impact valuation.
A miss or reduction in guidance will severely impact stock valuation.
Guidance Miss = Bad Financial Expectations Management
There Are Three Drivers of Lowered Guidance
1. Management Philosophy
2. FP&A competency: People, Process, Systems
3. Consensus: Bad expectations management
Let us double click on these drivers. . .
In recurring revenue businesses, even the seemingly smallest changes can be catastrophic because of compounding.
Remove something from the next period, and every future period thereafter is negatively impacted.
Once you print the quarter, only guidance matters!!!!
Management Issue: Typically, guidance misses are a hallmark of management teams focused solely on telling a positive story. In these situations, the team typically kicks the can down the road until they can no longer do anything but admit the negative outcome.
FP&A Competency: A guidance miss is always due in some part to FP&A revolving around a people, process, or systems problem. Any hyper-growth company can mask these issues when the market is expanding.
What are the drivers?
1. Not tying forecast to sales pipeline
2. Not adjusting for currency
3. Not tracking the sales funnel appropriately
4. Maybe Sales and Finance hate each other’s guts!
Consensus: A guidance miss illustrates poor financial expectations management on the part of the company.
What are the drivers?
1. Financial forecasts with no margin for error
2. Not directly managing analyst expectations / consensus
The Big Problem for PANW and High Valuation Stocks
HOF management teams know that premium valuations are driven by:
1. Accelerating revenue growth
2. Margin expansion
Disrupt one or both of these variables and the stock will see a significant negative change in valuation.
Three Take-Aways
1. Tripping up a driver of premium valuation makes the stock go down
2. Earnings is ONLY about guidance
3. Higher the stock valuation, the higher the sensitivity to changes in guidance
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