=Palo Alto Networks (PANW) reported earnings Thur 25 Feb 2016 (a/h)

For its fiscal second quarter ended Jan. 31, Palo Alto reported 40 cents earnings per share ex items on $334.7 million in sales, up 110.5% and 54%, respectively, vs. the year-earlier quarter. Both metrics topped the consensus view for 39 cents and $318.3 million.

Sales and EPS growth, however, decelerated for the second consecutive quarter.

Billings Surge To Undercut EPS

During Q2, Palo Alto reported record billings growth of 62% year over year to $459 million, vs. consensus expectation for $417 million, Needham analyst Scott Zeller wrote in a research report.

Zeller maintained his buy rating but cut his price target on Palo Alto Networks stock to 171 from 202. Palo Alto Networks isn’t a “fad” in security, but the company will likely face some challenges in continuing billings acceleration, he wrote.

Billings accelerated on 2,000 added customers and a 68% jump in subscription sales to $84.3 million. But Palo Alto Networks is a “victim of its own success,” Pacific Crest analyst Rob Owens wrote in a report.

Palo Alto Networks cut its fiscal 2016 operating margin guidance to 18%-19% vs. earlier views for 22%-25%, noting commissions on subscription sales will impact sales-and-marketing expenses. Those expenses jumped by $16 million sequentially in Q2.

“The upshot is strong free cash flow and free cash flow margin,” Owens wrote. The company expects 40% free cash flow margin in Q3, suggesting fiscal 2016 free cash flow should reach $730 million, according to Zeller.