Wall Street’s final unstoppable stock split of 2024 is here

Today, December 16th, a seemingly unstoppable company’s final stock split of 2024 takes place.

On November 20, AI-driven cybersecurity leader Palo Alto Networks (NASDAQ:PANW) reported its operating results for the first quarter of fiscal 2025 and added a surprising twist. The company’s board announced a 2-for-1 forward split that is expected to complete after the close of trading on December 13. Shares are scheduled to begin trading today, December 16, at the adjusted price. This is Palo Alto’s second stock split since going public, with a 3-for-1 forward split occurring in September 2022.

Since its initial public offering in July 2012, shares of Palo Alto Networks had skyrocketed 2,150% as of the closing bell on December 11th. This outperformance reflects that the company is outperforming its competitors, innovating and maneuvering.

Before we delve into the details, it is important to recognize that Palo Alto is ideally positioned to benefit from cybersecurity becoming a staple service.

As more companies than ever move their (and their customers’) data online and to the cloud, the responsibility for protecting that information is increasingly falling on third parties. Criminals don’t take a vacation just because Wall Street has had a bad day or the US/global economy has experienced a speed bump. The need to protect sensitive data is constant, resulting in predictable operational cash flow.

However, nothing has resulted in more consistent cash flow for Palo Alto Networks than the critical shift the management team made more than six years ago to focus on Software-as-a-Service (SaaS) subscriptions. Although the company has not abandoned physical firewall products, their share of net sales has become smaller over time.

The company’s next-generation AI-inspired security platforms are significantly more flexible than on-premises security solutions, meaning they can better detect and respond to potential threats.

More importantly, a subscription-based model results in higher margins than physical firewalls and is more likely to retain existing customers. This contributes to the consistency and predictability of the company’s operating cash flow.

The reason predictability is so important for Palo Alto Networks is that the company regularly draws on its cash flow to make bolt-on acquisitions. Since its initial public offering (IPO) in 2012, the company has expanded its product portfolio and increased cross-selling opportunities through a steady wave of acquisitions.

The icing on the cake for Palo Alto was its ability to attract larger customers. At the end of October, 305 customers generated annual recurring revenue (ARR) of at least $1 million, up 13% from the same period last year. Approximately 20% of these customers (60) generate ARR of more than $5 million, up 30% from the comparable quarter last year. Larger fish tend to produce better margins.

In other words, if Palo Alto Networks sticks to its strategy and continues to execute, we could be talking about the need for another stock split within five years, if not sooner.

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Bank of America is an advertising partner of Motley Fool Money. Sean Williams holds positions at Bank of America. The Motley Fool holds positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Broadcom and Palo Alto Networks. The Motley Fool has a disclosure policy.

Wall Street’s final unstoppable stock split of 2024 has arrived, originally reported by The Motley Fool