Table of Contents
a. Demand
Beat next-gen ARR estimate by 1.9% & beat guidance by 2%.
The AI demand tailwind is now meaningfully expanding beyond a few large initial customers.
Beat revenue estimate by 1.8% & beat guidance by 1.8%.
Its Network and AI platform grew by 17% Y/Y for fiscal year (FY) 2026 to reach $8.35B.
Its endpoint platform grew 25% Y/Y for FY 2026 to reach $1.92B.
Its identity platform (assuming CyberArk was owned for the full year) grew 21% Y/Y to $1.26B.
Beat remaining performance obligation (RPO; backlog) estimate by 1.1% & beat guidance by 1.1%.
If we include CyberArk in this period and last year’s period (bought it during the year), bookings growth accelerated for a 2nd consecutive quarter.
b. Profits & Margins
Missed 75.8% GPM estimate by 100 basis points (bps; 1 basis point = 0.01%).
The decline is tied to software growth outpacing the growth of the rest of the business. This will continue to lead to modest GPM pressure next year.
Beat $0.98 EPS estimate by $0.07 & beat guide by $0.08.
EPS grew by 7.4% Y/Y.
Full year EBIT margin rose by 40 bps Y/Y despite absorbing lower margin businesses from M&A.
Beat FCF estimate by 1%.
FCF grew by 35% Y/Y. FCF visibility is rising with a higher portion of billings coming from annual contracts.
Amortization and expenses tied to acquired intangibles (CyberArk) are weighing on GAAP margins right now.
c. Balance Sheet
$3B in cash & equivalents.
$4.8B in long-term investments.
$1.8B convertible senior notes.
The 15% Y/Y dilution was driven by the large CyberArk acquisition.
d. New Fiscal Year 2027 Guidance & Valuation
Palo Alto again sees modest GPM pressure for fiscal year 2027 due to a software mix-shift and also some memory inflation. Analysts expected very modest expansion, so this is a bit worse than what sell-siders wanted.
Next-gen ARR guide beat by 2.1%.
This represents 22.5% Y/Y growth.
They also see 19.5% Y/Y RPO growth to reach $25.3B.
Annual revenue guidance beat estimates by 2.4%.
Guidance represents 23.5% Y/Y growth.
This includes 11%-13% Network and AI Security growth, 30% Cortex growth and nearly 20% Y/Y Identity growth.
$4.175 EPS guide beat by $0.06.
They still think EBIT margin will expand thanks to enough OpEx leverage to offset the modest expected GPM decline.
FCF guide beat by 1%.
Q1 guidance was also ahead across the board.
PANW trades for 98x forward EPS. EPS is expected to grow by 9% this year and by 18% next year. On the other hand, operating income is expected to compound at a 21% clip during that time, so slower net income growth is tied to non-operating items and taxation. Still, it’s a very expensive stock when looking through a traditional price to earnings (P/E) lens or the P/E growth ratio (“PEG ratio” = P/E divided by earnings growth) made famous by Peter Lynch.
e. Call & Release
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