Cramer's Morning Take: Cisco and Palo Alto Networks 11/16/23

SPEAKER_1 (0:00)

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Jim Cramer (0:33)

Hey, it's Cramer, and this is my morning take on the market from today's CNBC Investing Club morning meeting. I want to start by saying thank heavens we did sell to Cisco, even though I do like Chuck Robinson's all the way back, and Palo Alto's coming in, but people have to remember that Palo Alto has been very strong, and it was a convoluted call of which you put out a fantastic note last night explaining what was going on.

David Faber (0:57)

Yeah, well, there certainly was a lot of confusion on the conference call. I think there was some mess up on the chart, but look, revenue strong, operating margin expansion, strong free cash flow, earnings growth, basically all the important metrics that we want to see as they made this pivot to profitability a year ago. But they lowered their billing guidance.

A lot of it has to do with what they called the higher cost of money.

So there's basically two types of customers that Palo Alto has. They have one, they have some that do contracts on an annual basis, or they have others that will sign like a three year deal, pay the money upfront. And what they're seeing now because of higher interest rates is more customers are hesitant to pay that upfront money for those three year deals. So the contract duration is shorter, which has a greater impact on billings because that's what billings accounts for, which is why they're trying to say, look at the RPO, the remaining performance obligation, which is more of a holistic view.

Jim Cramer (2:00)

Which is very strong, which is why you could be so contentious because if we were listening to a, let's say we were listening to a Salesforce call. That's exactly what Mark Benioff would put people to, his remaining performance obligation, basically how much money is in.

David Faber (2:16)

I don't even think Salesforce gives the billings anymore. They give the RPO, and they give the CRPO, which looks at what the RPO is over the next 12 months.

Jim Cramer (2:25)

So we concluded that it's a buying opportunity.

David Faber (2:27)

No, absolutely, because what Nikesh is also saying, the CEO, is that there has been no change in demand, no change in the pipeline of future deals, no change in the close rates of deals. They're still happening.

Jim Cramer (2:41)

Very popular.

David Faber (2:42)

None of that has to do with what happened in billing, so it all has to do with this change in contract duration, and look, I mean, the stock's been a horse this year.

So, I mean, look, they could have even, with some regards, reported a good number and the stock would be down, but this isn't a Fortinet situation that talked about a slowing firewall market. Palo Alto has been much more conservative with their firewall guide all year. It's not an execution issue. Again, it has to deal with these shorter duration contracts.

Jim Cramer (3:12)

Right, and we have to see what CrowdStrike does, and Zscaler has not had this problem, but I come away and I just say, all right, look, it's when you have a convoluted situation where the people were actually confused on a call, you're going to get sold.

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SPEAKER_4 (3:38)

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SPEAKER_5 (4:21)

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