May 30, 2013 / 10:48 PM / 5 years ago

Palo Alto expects revenue growth to slow, shares plunge

(Reuters) - Security software maker Palo Alto Networks (PANW.N) forecast current-quarter results below market estimates as revenue growth slows due to U.S. budget cuts and European debt crisis, sending its shares down about 14 percent in extended trading.

Mark McLaughlin, president and chief executive officer of Palo Alto Networks speaks during an interview in New York, March 19, 2013. REUTERS/Brendan McDermid

The company, which gets a significant amount of its revenue from the U.S. government, has been hurt by across-the-board federal spending cuts since March.

Palo Alto, which sells firewalls that prevent data breaches and block malware and viruses, forecast revenue of $106 million to $110 million and earnings of about 6 cents per share in the fourth quarter.

The revenue forecast, at the midpoint of the range, assumes a growth rate of 42 percent from a year earlier.

Analysts on average had expected revenue of $113.7 million and earnings of 7 cents per share, according to Thomson Reuters I/B/E/S.

“Palo Alto is starting to hit bumps in their growth story. Investors think of (the company) as the golden boy but bigger companies like Checkpoint are starting to defend their turf,” FBR Capital Markets analyst Daniel Ives said.

Year-over-year revenue growth slowed to 54 percent in the third quarter from 70 percent in the preceding quarter.

“Investors were expecting a home run quarter while the company scored a single or a double,” Ives added, talking in baseball parlance.

Palo Alto competes with larger companies such as Check Point Software Technologies (CHKP.O) and Cisco Systems Inc (CSCO.O).

The company, which went public in July, posted a loss of $7.3 million, or 10 cents per share, compared with a profit of $0.8 million a year earlier. Excluding items, the company earned 6 cents per share.

Analysts on average had expected earnings of 5 cents.

Revenue of $101.3 million missed estimate of $103.5 million.

Product revenue fell about 2 percent to $60.8 million from the preceding quarter.

Reporting By Aditya Kondalamahanty in Bangalore; Editing by Don Sebastian

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