Equity Research · Earnings Update
Palo Alto Networks, Inc. (PANW)
Summary and key takeaways
Palo Alto Networks reported fiscal Q4 2026 revenue of $3.41 billion, up 34%, with Next-Generation Security annual recurring revenue up 63% to $9.10 billion and remaining performance obligations up 34% to $21.2 billion. Non-GAAP EPS of $1.02 beat the $0.98 consensus. On a GAAP basis the quarter was a net loss of $282 million, and fiscal-year GAAP net income fell to $307 million from $1.13 billion, as the CyberArk acquisition added amortization, integration costs and a fair-value charge on acquired convertible notes. Guidance calls for fiscal 2027 revenue of $14.10–14.20 billion. The stock still fell −9.28% to $328.48 on September 2, after subscription and support revenue and adjusted gross profit came in below consensus. It is +2.02% since, at $335.10.
Results snapshot
| Metric | This quarter | Change / comparison |
|---|---|---|
| Revenue | $3.41B | +34%; consensus $3.35B |
| Next-Generation Security ARR | $9.10B | +63% |
| Remaining performance obligations | $21.2B | +34% |
| Non-GAAP diluted EPS | $1.02 | vs $0.95 a year ago; consensus $0.98 |
| GAAP net income (loss) | −$282M | −$0.35 per share vs +$254M ($0.36) |
| Fiscal 2026 revenue | $11.48B | +24% |
| Fiscal 2026 GAAP net income | $307M | vs $1,134M in fiscal 2025 |
| Fiscal 2026 operating cash flow | $4.55B | vs $3.72B |
Analysis
The headline growth rate needs one adjustment before it means anything: it includes CyberArk. That is not hidden — the guidance makes it visible. NGS ARR grew 63% in fiscal 2026, and the fiscal 2027 guide of $11.075–11.175 billion implies 22–23%. Most of that drop is the acquisition lapping, not demand collapsing: the company added nearly $1 billion of net new NGS ARR in Q4 and a record 220 net new platform customers. But the market now has to judge the business at its organic pace, and subscription revenue missing estimates was the first sign of it.
Figure 1 · Annual revenue and the fiscal 2027 guide
Revenue steps up another $2.7B in fiscal 2027 — with a full year of CyberArk inside it
Revenue in $ billions for fiscal years ending July 31. FY2024A–FY2026A from Palo Alto Networks’ 10-K filings (SEC XBRL); FY2027E is the midpoint of the $14.10–14.20 billion guide in the September 1, 2026 release. The shaded segment is guidance, not a reported result.
The GAAP picture is the other half. Fiscal 2026 operating income fell to $695 million from $1.24 billion even as revenue grew 24%. G&A doubled to $899 million, D&A rose to $855 million from $343 million as acquired intangibles began amortizing, and other income swung to a $159 million loss. The balance sheet doubled to $48.5 billion, of which $29.0 billion is now goodwill and intangibles.
Guidance
- Fiscal Q1 2027: revenue $3.300–3.310 billion (+33–34%); NGS ARR $9.54–9.56 billion; non-GAAP EPS $0.96–0.98
- Fiscal 2027: revenue $14.10–14.20 billion (+23–24%); NGS ARR $11.075–11.175 billion (+22–23%); non-GAAP operating margin 29.5%; non-GAAP EPS $4.16–4.19; adjusted free-cash-flow margin 38%
What the rebuilt model says
The previous version of the rebuilt three-statement model (.xlsx) still treated fiscal 2026 as a forecast. I rolled it forward on September 10. Fiscal 2025 and 2026 are now actual years from the 10-K, and the forecast runs FY2027E–FY2031E. First-year growth is the 23.3% guide midpoint. Margins start from fiscal 2026’s actual cost structure, with CyberArk integration costs assumed to roll off. Two fiscal 2025 figures were corrected: D&A was overstated by deferred-contract-cost amortization, and capex was $247 million, not $300 million. $ millions:
| $ millions | FY2026A | FY2027E | FY2028E | FY2029E | FY2030E | FY2031E |
|---|---|---|---|---|---|---|
| Revenue | 11,480 | 14,155 | 16,278 | 18,394 | 20,602 | 22,868 |
| GAAP operating income | 695 | 1,486 | 1,709 | 1,931 | 2,163 | 2,401 |
| GAAP operating margin | 6.1% | 10.5% | 10.5% | 10.5% | 10.5% | 10.5% |
| Net income | 307 | 995 | 1,163 | 1,329 | 1,503 | 1,682 |
The input that decides how fast GAAP profit recovers is SG&A, which carried the integration costs. FY2027E GAAP operating income at three SG&A levels:
| SG&A as % of revenue | FY2027E GAAP operating income | FY2027E GAAP operating margin |
|---|---|---|
| 37% | $1.77B | 12.5% |
| 39% | $1.49B | 10.5% |
| 41% | $1.20B | 8.5% |
Assumptions, stated plainly. Gross margin 71%, SG&A 39% and R&D 21.5% of revenue, against fiscal 2026 actuals of 70.4%, 42.1% and 22.2%. The SG&A step-down is my assumption that integration costs fade, not guidance. Management’s 29.5% operating-margin guide is non-GAAP and excludes stock compensation and amortization, so it is not comparable to the GAAP margins here. Growth after fiscal 2027 steps down to 11% by fiscal 2031 — my assumption. Acquired intangibles amortize down with 87% of D&A (fiscal 2026: $744 million of $855 million was not depreciation of PP&E), goodwill is not impaired, and forecast financing is a plug. This is a sensitivity, not a valuation.
Updated investment thesis
PANW is a Core holding at 4.91% of the book and +109.02% on my cost — one of the largest winners I own. The thesis is platform consolidation in enterprise security. The quarter supports it on the metrics that measure it directly: record platformizations, nearly $1 billion of net new NGS ARR, and $21.2 billion of contracted revenue.
No position change. What changed is that the thesis now comes with an acquisition attached. Headline growth is flattered by CyberArk for another few quarters, and GAAP earnings are depressed by it, so both numbers overstate how different this year is. The organic subscription line is the one to watch, and it missed.
Risks to this position
- Organic growth: NGS ARR growth guided from 63% to 22–23% as CyberArk laps; subscription and support revenue already missed consensus.
- Integration: G&A doubled in fiscal 2026, and $29.0 billion of goodwill and intangibles now sits on a $48.5 billion balance sheet.
- GAAP earnings: fiscal 2026 GAAP net income fell 73%; the gap to non-GAAP profit widened on amortization and acquisition costs.
- Sector contagion: the stock’s fall took four cybersecurity and software peers down with it, and this book owns several of them.
Sources & references
- Palo Alto Networks Reports Fiscal Fourth Quarter and Fiscal Year 2026 Financial Results (SEC Exhibit 99.1), September 1, 2026
- Consensus and reaction detail: September 2 News writeup (Zacks Investment Research) and The Quality of the Beat
- FY2024A–FY2026A revenue and model actuals: Palo Alto Networks 10-K filings via SEC XBRL company facts
- Price data: Massive Market Data daily closes