Overview
Since the Report + 11.1%
Revenue grew 34.0% year over year, EPS beat the estimate by 4.0%; the stock fell 1.8% in its first reaction.
- RevenueQ4
- $3.41B
- ▲ 34% YoY · Beat Estimate by 1.8%
- EPSAdjusted
- $1.02
- Est. $0.98 · Beat by 4%
Verdict
BUYPalo Alto Networks closed its fiscal year with a record quarter: revenue rose 34% to $3.41 billion, and next-generation security annual recurring revenue (NGS ARR) jumped 63% to $9.1 billion. Nearly $1 billion of net new ARR was added in a single quarter, and both the quarterly and full-year FY2027 outlook came in above market expectations. Yet a 1-point contraction in gross margin and rising cloud costs unsettled investors; after a 90% gain over the past year, the high bar left shares slightly lower after hours.
Close on Report DaySep 1
$362.08▼ 1.8%Report-Day Move
- Market Cap(Today)
- ≈ $329 B
- 1Y Return(At Report)
- + 90%
- P/E(At Today's Price · $3.84 · Trailing 12M)
- 104.7
- PEG(Company Guidance FY2027)
- 12.04
- Net Margin(Trailing 12M)
- 2.7%
Earnings Summary
In 30 Seconds- Revenue rose 34% to $3.41 billion, beating estimates by 1.8%; adjusted EPS of $1.02 came in 4% above expectations.
- Next-generation security ARR grew 63% to $9.1 billion; FY2027 revenue guidance sits 2.2% above expectations.
- Shares slipped 1.8% after hours as a 1-point gross margin contraction and rising cloud costs took center stage.
The Numbers
NGS ARR
$9.10B
▲ 63% YoY · ~$1B Net New
RPO (Remaining Obligations)
$21.2B
▲ 34% YoY
Gross Margin
74.8%
1.0 Pt Contraction · SaaS Mix
Free Cash Flow
$1.29B
▲ 35% YoY · 37.8% Margin
Quarterly Revenue ($ Billion)
2.54
Q4 25 · $2.54 B
2.47
Q1 26 · $2.47 B · QoQ − 2.4%
2.59
Q2 26 · $2.59 B · QoQ + 4.9%
3.00
Q3 26 · $3.00 B · QoQ + 15.7%
3.41
Q4 26 · $3.41 B · QoQ + 13.6% · YoY + 34.5%
3.30–3.31
Q1 27E · 3.30–3.31 · QoQ − 3.1% · YoY + 33.6%
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26
- Q1 27E
Q1 FY27 Company Guidance
- Revenue (Q1 FY27)3.30 – 3.31 billion3.30 billion3.31 billion3.30 – 3.31 billion
Midpoint 3.305 · Est. 3.212.9% Above Estimate ▲
- Adjusted EPS (Q1 FY27)0.96 – 0.98 $0.96 $0.98 $
Midpoint 0.97 · Est. 0.943.2% Above Estimate ▲
- Revenue (Full Year FY27)14.1 – 14.2 billion14.1 billion14.2 billion14.1 – 14.2 billion
Midpoint 14.15 · Est. 13.84 · ▲ 23% YoY2.2% Above Estimate ▲
- Adjusted EPS (Full Year FY27)4.16 – 4.19 $4.16 $4.19 $4.16 – 4.19 $
FY2026 $3.84 · Est. 4.11▲ 8.7% YoY Growth
- Operating Margin (FY27)29.5%
FY2026 29.2%0.3 pt Expansion ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±3.6% around the midpoint.
Segment and KPI Data
Revenue by Segment
- Subscription and Support$2.67 BShare 78.4%▲ 36.2% YoY
- Product$738 MShare 21.6%▲ 28.6% YoY
Key Metrics
NGS Annual Recurring Revenue
$9.10 B
▲ 63.0% YoYPress Release
Remaining Performance Obligation
$21.2 B
▲ 34.0% YoYPress Release
Operating Cash Flow
$1.36 B
Press Release
Free Cash Flow
$1.25 B
Press Release
Adjusted Free Cash Flow Margin
37.8%
Press Release
Current Deferred Revenue
$7.75 B
Press Release
Shares are computed over the segment total: $3.41 B. Source: Press Release.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We closed the year strong, adding nearly $1 billion of net new NGS ARR in a single quarter. We transformed a large company like CyberArk in nine months and lifted its margins by more than 1,000 basis points. Q4 was the very first quarter in which we saw the profound implications of cyber-capable AI models; security is increasingly becoming a platform business.”
- Record NGS ARR Contribution
- CyberArk Margin Transformation
- AI-driven Security
Summary and Review
Summary
In the quarter ended July 31, Palo Alto Networks reported $3.41 billion in revenue, up 34% year over year. That beat the $3.35 billion consensus by 1.8%. Adjusted earnings were $1.02 per share, beating the $0.98 estimate by 4%. Next-generation security ARR reached $9.1 billion, up 63% year over year. Net new ARR in the quarter was roughly $1 billion. Remaining performance obligations (RPO) rose 34% to $21.2 billion, and adjusted free cash flow grew 35% to $1.29 billion.
Despite beating on every headline line, the stock slipped 1.8% after hours to $355.64. It had closed the regular session down 5.25% at $362.08. Investor focus shifted from the numbers to margins. Gross margin narrowed 1 point year over year to 74.8% as the company shifts toward a software-as-a-service model. Cloud hosting costs are expected to grow faster than revenue in FY2027. A 90% gain over the past year had raised both the bar and the sensitivity to any blemish.
Both the Q1 FY2027 and full-year outlook landed above expectations. The company targets $14.1–14.2 billion in FY2027 revenue versus $13.84 billion expected. The platformization strategy, CyberArk integration and AI-security demand power growth. CEO Nikesh Arora said CyberArk's margins rose 1,000 basis points in nine months. Growth, however, should normalize from 34% to about 23% as the CyberArk contribution laps. Operating-margin expansion is just 0.3 points. The quarter is strong, but the margin reservation keeps it from a top score.
Full Review
CyberArk and platformization drive growth.
The most striking feature of the quarter was the jump in the growth rate. Revenue rose 34% to $3.41 billion from $2.54 billion in the same quarter a year earlier, well above the 16–31% range of prior quarters. The engine behind this acceleration is the completed CyberArk acquisition now contributing fully to the top line, together with the platformization strategy that bundles multiple products into a single contract. The quarter delivered about 220 new platformization deals, a record and more than double the level from two years ago when the metric was first disclosed. NGS ARR rose 63% to $9.1 billion, with roughly $1 billion of net new ARR added in a single quarter. Remaining performance obligations also climbed 34% to $21.2 billion, reinforcing forward revenue visibility. In short, this is a growth quarter supported by both acquisition and organic momentum.
The margin path is the one real reservation.
The reason the stock fell in a quarter that beat expectations is margins. Gross margin narrowed by 1 point year over year to 74.8% as the shift toward a software-as-a-service model raises cloud hosting costs. CFO Dipak Golechha explicitly said cloud hosting costs will grow faster than total revenue in FY2027. Add to that elevated memory and storage costs on the hardware side, which accounts for roughly 10% of revenue. Adjusted operating margin came in at 29.6% for the quarter and 29.2% for the full year, with only 29.5% guided for FY2027 — expansion of just 0.3 points. In a stock with high expectations and an already stretched valuation, that was enough of a detail for investors to seize on.
Guidance beat expectations across the board.
The good news is that the forward outlook came in above expectations. The company guides Q1 FY2027 to $3.30–3.31 billion in revenue (versus $3.21 billion expected) and $0.96–0.98 in adjusted EPS (versus $0.94). For the full year it targets $14.1–14.2 billion in revenue, about 2.2% above the ~$13.84 billion consensus. The FY2027 adjusted-EPS target of $4.16–4.19 is also above the $4.11 estimate. The one caveat is that growth will normalize. Annual revenue growth is expected to slow from 34% to about 23% as the CyberArk contribution completes a full year and the comparison base rises. Still, a business both beating estimates and guiding higher is a strong signal.
GAAP loss versus adjusted profit gap is wide.
A part of the quarter that warrants attention is the large gap between the two earnings definitions. The company reported a $282 million GAAP net loss, or $0.35 per share, against a $853 million adjusted profit and $1.02 adjusted EPS. The main driver of that gap is non-cash items such as amortization of acquired intangibles tied to CyberArk and share-based compensation. For investors, the key point is that GAAP earnings tend to stay pressured for a while after large acquisitions. Reading operating performance through the adjusted figures is therefore more meaningful. Over time, as amortization runs off, GAAP earnings should normalize too. All earnings and growth measures in this assessment use the adjusted definition.
Console deal is a bet on AI agents.
On earnings day the company also announced the acquisition of Console, an AI-native platform. Console is described as infrastructure that enables agentic capabilities and will be folded into Palo Alto's Cortex automated security-operations product. The goal is to deepen automated threat detection and response at a time when AI is reshaping the threat landscape. Financial terms were not disclosed, so its contribution cannot yet be quantified. But the strategic direction is clear: the company is concentrating both organic investment and small, targeted acquisitions around AI security. The CEO's emphasis on 'cyber-capable AI models' underscores that focus. Next quarter, watch two lines: whether revenue lands in the $3.30–3.31 billion guide, and where gross margin goes from 74.8%.
Looking Ahead
Strengths and Risks
6 Strengths · 6 RisksStrengths
6- Next-generation security ARR rose 63% year over year to $9.1B, with ~$1B of net new ARR added in a single quarter.
- Both Q1 and full-year FY2027 guidance came in above market expectations (revenue and earnings).
- Remaining performance obligations (RPO) rose 34% to $21.2BForward revenue visibility is high.
- A record ~220 new platformization deals were signed in the quarter.
- Adjusted free cash flow grew 35% to $1.29B at a 37.8% margin, showing strong cash generation.
- CyberArk integration is progressing fastA ~1,000 basis-point margin improvement in nine months (per the earnings call).
Risks
6- Gross margin narrowed 1 point year over year to 74.8%The SaaS transition and cloud costs are weighing on it.
- Management said cloud hosting costs will grow faster than revenue in FY2027.
- Revenue growth is normalizing from 34% to about 23% as the CyberArk contribution laps.
- A GAAP net loss was reportedA large share of earnings surfaces only through adjustments.
- The stock is up 90% over the past yearThe valuation is stretched and the margin for error is thin.
- Memory and storage costs on the hardware side may stay elevated.
What to Watch
4- Q1 FY2027 results are due around November 2026.
- Integration of the Console acquisition into the Cortex platform will complete over the year.
- The rollout of CyberArk synergies across the full FY2027 year will be watched.
- The FY2027 NGS ARR target is set at $11.08–11.18B for year-end.
Upcoming Earnings
To Understand This