Palo Alto stock dives after slashing full-year guidance

Palo Alto Networks (PANW) shares dive lower in Wednesday's pre-market trading despite beating fiscal second-quarter earnings estimates, outpacing adjusted earnings expectations by posting gains of $1.46 per share and inching past revenue forecasts.

Yahoo Finance Reporter Madison Mills examines the cybersecurity company's stock pressures stemming from its disappointing third-quarter and full-year guidance.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

Let's take a look at today's stock to watch though, here this morning. And we're tracking shares of Palo Alto, they are tumbling in premarket after cutting its full year guidance. Yahoo Finance's Madison Mills is on the floor of the New York Stock Exchange with more on this. Hey Maddie.

MADISON MILLS: Hey Brad. So Palo Alto nosediving over 20% since their earnings print. They'd only tumbled by that much one other time in the stock's history, and that was in 2017. So just some context to indicate the degree to which the street was disappointed in these results.

Now what's interesting to note is that this is part of a strategic shift for the company. And the CEO talked about that on the call, saying that they're hoping to become a service platform, rather than just a cyclical service that a company might outsource quarter-to-quarter. They want to join the likes of a ServiceNow, of a Workday, and those platforms we know have seen a lot of success. Having said that, they need to work with their customers to make sure that adoption of those platforms is more seamless. And that's exactly what the CEO said they're going to be doing, moving forward on the call.

Now what's interesting to me is what happens when you look at the numbers. They beat on the top and bottom line, but, of course, it's all about that forward guidance. They cut their guidance just ever so slightly here. And that indicates to me both on revenue and billings, by the way, that it's this broader picture that we've seen throughout this earnings cycle, that if you are not beating by double digits, if you're not also updating your forward guidance higher and higher, particularly if you are in one of these AI-driven sectors, and Palo Alto considers itself one of those AI plays within the cybersecurity space, you are going to get punished by the street.

And this is an indication to me of what we need to be looking out for ahead of those all important NVIDIA earnings coming out later today. Even if we see some beats in the major areas of the print, could that forward guidance lead the stock to tumble? I know that's what we're spending a lot of the show talking about today as well. Interesting to note, though, for Palo Alto, moving forward, is this strategic shift that the CEO mentioned going to be able to bump up that forward guidance in the future. Guys--

BRAD SMITH: All right, Madison, thanks so much. We'll check back in a little closer to the opening bell.