WS Investor
03 Jun 2026, 12:36
Palo Alto Networks Falls 5.5% Despite Strong Growth as Investors Focus on Profitability and Expectations
Shares of Palo Alto Networks (NASDAQ: PANW) fell 5.5% in premarket trading despite reporting strong fiscal third-quarter results, as investors digested the impact of recent acquisitions and weighed the company's outlook against elevated expectations.
The cybersecurity leader reported third-quarter revenue of $3.0 billion, up 31% year-over-year, driven by strong demand for AI security solutions and contributions from the CyberArk and Chronosphere acquisitions. Next-Generation Security annual recurring revenue (ARR) surged 60% to $8.1 billion, while remaining performance obligations increased 36% to $18.4 billion, highlighting strong customer demand and future revenue visibility.
Profitability also improved on a non-GAAP basis. Non-GAAP operating income rose to $814 million from $627 million a year earlier, while non-GAAP earnings per share increased to $0.85 from $0.80. Adjusted free cash flow reached $910 million, up from $578 million last year, with the trailing 12-month adjusted free cash flow margin expanding to 38.5%.
However, the company reported a GAAP net loss of $177 million compared with net income of $262 million a year ago, reflecting acquisition-related expenses and integration costs associated with CyberArk and Chronosphere.
Looking ahead, Palo Alto Networks forecast fourth-quarter revenue of $3.345 billion to $3.355 billion and Next-Generation Security ARR of $8.90 billion to $8.95 billion. For fiscal 2026, the company expects revenue of approximately $11.4 billion and non-GAAP EPS of $3.77 to $3.79.
CEO Nikesh Arora highlighted accelerating bookings growth and increasing demand from customers seeking to secure AI deployments, calling cybersecurity one of the biggest beneficiaries of the rapid expansion of artificial intelligence.
Despite the strong results and guidance, the stock moved lower as investors appeared to focus on the GAAP loss and the challenge of exceeding already high expectations after Palo Alto Networks' strong performance over the past year.
Shares of Palo Alto Networks (NASDAQ: PANW) fell 5.5% in premarket trading despite reporting strong fiscal third-quarter results, as investors digested the impact of recent acquisitions and weighed the company's outlook against elevated expectations.
The cybersecurity leader reported third-quarter revenue of $3.0 billion, up 31% year-over-year, driven by strong demand for AI security solutions and contributions from the CyberArk and Chronosphere acquisitions. Next-Generation Security annual recurring revenue (ARR) surged 60% to $8.1 billion, while remaining performance obligations increased 36% to $18.4 billion, highlighting strong customer demand and future revenue visibility.
Profitability also improved on a non-GAAP basis. Non-GAAP operating income rose to $814 million from $627 million a year earlier, while non-GAAP earnings per share increased to $0.85 from $0.80. Adjusted free cash flow reached $910 million, up from $578 million last year, with the trailing 12-month adjusted free cash flow margin expanding to 38.5%.
However, the company reported a GAAP net loss of $177 million compared with net income of $262 million a year ago, reflecting acquisition-related expenses and integration costs associated with CyberArk and Chronosphere.
Looking ahead, Palo Alto Networks forecast fourth-quarter revenue of $3.345 billion to $3.355 billion and Next-Generation Security ARR of $8.90 billion to $8.95 billion. For fiscal 2026, the company expects revenue of approximately $11.4 billion and non-GAAP EPS of $3.77 to $3.79.
CEO Nikesh Arora highlighted accelerating bookings growth and increasing demand from customers seeking to secure AI deployments, calling cybersecurity one of the biggest beneficiaries of the rapid expansion of artificial intelligence.
Despite the strong results and guidance, the stock moved lower as investors appeared to focus on the GAAP loss and the challenge of exceeding already high expectations after Palo Alto Networks' strong performance over the past year.