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Earnings

Every Line in Palo Alto's Earnings Beat the Street

Revenue grew 31% to $3 billion, next-generation security ARR hit $8.1 billion, and management raised full-year guidance across the board.

By VonTrend Staff
Every Line in Palo Alto's Earnings Beat the Street

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The Numbers

Palo Alto Networks reported fiscal third quarter revenue of $3.0 billion Tuesday after the bell, a 31% increase from a year ago. Non-GAAP earnings came in at $0.85 per share, beating the $0.79 consensus by $0.06.

Next-generation security annual recurring revenue reached $8.1 billion, up 60% year over year. Remaining performance obligations grew 36% to $18.4 billion. Adjusted free cash flow hit $910 million for the quarter, pushing the trailing twelve-month margin to 38.5%.

The stock jumped sharply in extended trading after the report.

The CyberArk Effect

The quarter included $388 million in revenue from CyberArk and Chronosphere, the two acquisitions Palo Alto closed earlier this year. Those deals added $1.6 billion to next-gen security ARR and $1.8 billion to remaining performance obligations.

Management said integration is running ahead of plan. CEO Nikesh Arora pointed to AI deployments driving urgency around cybersecurity spending, calling it a structural shift in how enterprises budget for security. The GAAP net loss of $177 million reflects acquisition-related charges and stock-based compensation, not operating deterioration. Non-GAAP operating income rose 30% to $814 million.

Full-Year Guidance Raised

For fiscal 2026, management now expects revenue of $11.415 to $11.425 billion, up 24% year over year and above the prior Street consensus near $11.29 billion. Non-GAAP EPS guidance moved to $3.77 to $3.79, also above estimates.

Fourth quarter guidance calls for $3.345 to $3.355 billion in revenue and $0.96 to $0.98 in non-GAAP EPS. Both above consensus. The company is targeting a 37.5% adjusted free cash flow margin for the full year and reiterated its path to 40% by fiscal 2028.

At roughly 70 times forward earnings with a trailing twelve-month free cash flow yield below 2%, Palo Alto is priced for sustained execution. But $18.4 billion in remaining performance obligations provides more visibility than most growth stocks at this valuation. That backlog covers more than a year and a half of revenue at the current run rate.

What CrowdStrike Has to Answer Tomorrow

This morning we profiled the sector's biggest names in our cybersecurity stock guide. Tonight, Palo Alto validated the thesis.

CrowdStrike reports after the bell Wednesday, and the bar just got higher. Last week, Zscaler shed $6 billion in market value after cutting free cash flow guidance. One miss, one crater. Palo Alto delivered the opposite: a clean beat on every metric with a guidance raise attached.

For investors watching cybersecurity earnings week, this is the strongest signal yet that enterprise security spending is accelerating. Whether that momentum is sector-wide or concentrated at the top depends on what CrowdStrike delivers tomorrow.

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VonTrend Staff

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