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One of the world's largest cybersecurity firms builds platforms for network security, security operations, and threat intelligence. Its products include Prisma Access for connecting remote workers and the Cortex suite for detecting threats. Founded in 2005 by Nir Zuk, the company took its name from the Silicon Valley city of Palo Alto, though it's headquartered in nearby Santa Clara. Zuk reportedly launched the firm after leaving Check Point, aiming to outdate its firewalls.
Palo Alto Networks posts a $183M operating loss as acquisition costs and a $684M share-based compensation charge overwhelm 31% revenue growth.
rose 31% to $3.0 billion, but the company swung to an operating loss. fell 5.4 points to 67.6% as of acquisition intangibles, higher cloud costs, and a $684 million charge more than offset the top-line gain. The CyberArk integration is reshaping the cost structure faster than revenue can absorb it.
Key takeaways
rose 31% to $3.0 billion, with both product and subscription and support revenue each up 31%, driven by organic demand and the contribution from the CyberArk acquisition.
Total fell 5.4 points to 67.6%, which management attributed to higher , increased cloud hosting costs, and lower hardware margins.
The company reported an operating loss of $183 million, compared to a $219 million profit a year ago, as a $684 million charge and integration expenses outweighed growth.
Section summaries
Management's Discussion and Analysis
Q3 FY2026 revenue grew 31% YoY to $3.0B, but operating loss of $183M reflects acquisition-driven costs and margin compression.
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Total rose 31% to $3.0B, with product revenue up 31% to $594M and subscription and support revenue up 31% to $2.4B, driven by organic demand and the CyberArk acquisition.
Total declined to 67.6% from 72.9% a year ago, pressured by higher of acquisition-related , increased cloud hosting costs, and lower hardware margins.
Operating expenses rose sharply: research and development up 49%, sales and marketing up 46%, and general and administrative up 93%, primarily from acquisition-driven headcount growth and higher .
Next-Generation Security reached $8.1 billion, and remaining performance obligations grew to $18.4 billion, which management cited as indicators of forward visibility.
for the first nine months was $3.2 billion, and the company held $7.0 billion in cash and investments, though turned to a $1.3 billion deficit.
What changed
The CyberArk acquisition, flagged in the FY2025 10-K as a $25 billion transaction, closed in Q2 FY2026 for $2.3 billion in cash and stock; this quarter is the first to include a full period of CyberArk results, and the integration drove the sharp rise in operating expenses and the $183 million operating loss.
Product growth of 31% accelerated from 22% in Q2 FY2026 and 23% in Q1 FY2026, marking a third consecutive quarter above 20% — a pace not seen in over two years — though the filing attributes part of the gain to the CyberArk acquisition rather than purely organic demand.
Subscription and support continued to decline, contributing to the 5.4-point drop in total gross margin, extending a multi-quarter trend of pressure from cloud hosting costs that was first flagged in Q1 FY2025 and has now persisted for over a year.
The Centripetal Networks appeal on the $113.6 million judgment, flagged in every prior filing, remains unresolved and is incorporated by reference into this quarter's legal proceedings disclosure.
Next-Generation Security , which replaced billings as the primary forward-looking metric, was disclosed at $8.1 billion after being absent from the Q1 and Q2 FY2026 filings, though a growth rate was not provided.
What to watch
Whether the $684 million charge is a one-time acquisition-related item or signals a structurally higher run-rate for as the combined entity scales.
Whether total stabilizes above 70% in the next quarter or continues to compress as of CyberArk intangibles and cloud hosting costs persist.
The outcome of the Centripetal Networks appeal on the $113.6 million judgment and whether it alters the company's remaining litigation exposure.
Whether Next-Generation Security growth rate is disclosed in future quarters and whether it accelerates or decelerates from the $8.1 billion base, now that the metric has returned to disclosure.
Operating expenses surged, with R&D up 49%, sales and marketing up 46%, and G&A up 93% , primarily due to headcount growth from acquisitions, higher , and acquisition-related costs.
The company reported an operating loss of $183M compared to a $219M profit last year, as a $684M charge and integration expenses outweighed growth.
Next-Generation Security reached $8.1B, and grew to $18.4B, indicating strong forward visibility.
Liquidity remains robust with $7.0B in cash and investments, and of $3.2B for the nine months, though turned to a $1.3B deficit.
Quantitative and Qualitative Disclosures About Market Risk
Except for the item below, our assessment of our exposures to market risk has not changed materially from the disclosure set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025. Interest Rate Risk The primary objectives of our inve…
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Except for the item below, our assessment of our exposures to market risk has not changed materially from the disclosure set forth in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.
Interest Rate Risk
The primary objectives of our investment activities are to preserve principal, provide liquidity, and maximize income without significantly increasing risk. Most of the securities we invest in are subject to interest rate risk. To minimize this risk, we maintain a diversified portfolio of cash, cash equivalents, and investments, consisting only of investment-grade securities. To assess the interest rate risk, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio. Based on investment positions as of April 30, 2026, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $96 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity. Conversely, a hypothetical 100 basis point decrease in interest rates would lead to a $98 million increase in the fair market value of the portfolio.
The information set forth under the “Litigation” subheading in Note 11. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
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The information set forth under the “Litigation” subheading in Note 11. Commitments and Contingencies in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Growth management, CyberArk integration, AI risks, and supply chain dependencies are the most material risk themes this quarter.
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Rapid headcount growth to 21,491 employees, including 4,166 from the CyberArk acquisition, strains management, systems, and processes.
Integrating the CyberArk acquisition introduces incremental risks, including increased competition in identity security and potential disruption to existing business relationships.
AI development and deployment risks include flawed algorithms, biased data, reputational harm, and potential commoditization of cybersecurity solutions.
Dependence on limited-source components, including sole-source providers, exposes the company to supply shortages, global memory chip constraints, and tariff-driven cost increases.
Subscription and support , comprising 80.9% of total revenue, creates deferred recognition risk where downturns in sales or renewals are not immediately reflected in full.
An ongoing patent infringement case resulted in a $114 million damages judgment, which is currently on appeal, highlighting significant intellectual property litigation exposure.