Palo Alto Networks (PANW) Q3 2026 Financial Results Summary
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Palo Alto Networks (PANW) Q3 2026: Revenue Surge, Profitability Challenges — Mixed Results
Palo Alto Networks (NASDAQ: PANW) reported its fiscal third quarter 2026 results, revealing a significant revenue increase but notable profitability challenges. Total revenue for the quarter grew by $711 million, or +31% year over year, reaching $3.0 billion. This growth was bolstered by contributions of $388 million from recent acquisitions, CyberArk and Chronosphere.
Despite the impressive revenue growth, the quarter presents a mixed bag for shareholders. While the top line reflects strong demand for cybersecurity solutions, the company reported a GAAP operating loss of $183 million, a stark contrast to the GAAP operating income of $219 million from the same quarter last year. This shift indicates that while revenue is increasing, the company is facing challenges in managing its costs effectively.
Key Financial Metrics:
- Total Revenue: $3.0 billion, up $711 million or +31% YoY
- Next-Generation Security ARR: $8.1 billion, up 60% YoY
- Remaining Performance Obligation: $18.4 billion, up 36% YoY
- GAAP Operating Loss: $183 million (Q3 2025: $219 million income)
- Non-GAAP Operating Income: $814 million (Q3 2025: $627 million)
- GAAP Net Loss: $177 million, or ($0.22) per diluted share (Q3 2025: $262 million income, $0.37 per diluted share)
- Non-GAAP Net Income: $684 million, or $0.85 per diluted share (Q3 2025: $561 million, $0.80 per diluted share)
- Adjusted Free Cash Flow: $910 million, up from $578 million YoY
- Adjusted Free Cash Flow Margin: 30.3%, up from 25.3% YoY
The substantial growth in revenue and ARR, particularly in the Next-Generation Security segment, reflects the increasing urgency for cybersecurity solutions as businesses ramp up their AI deployments. However, the GAAP operating loss raises concerns about the company's ability to control expenses amid rapid growth. The increase in non-GAAP operating income suggests that the core business remains strong, but the divergence between GAAP and non-GAAP figures may lead to skepticism among investors regarding the sustainability of profitability.
Dividend and Share Buyback:
There were no announcements regarding dividends or share buybacks in this quarter's report.
Guidance:
Looking ahead, Palo Alto Networks provided optimistic guidance for the fiscal fourth quarter 2026:
- Next-Generation Security ARR: Expected to be between $8.90 billion and $8.95 billion, representing growth of 59% to 60% YoY.
- Remaining Performance Obligation: Expected to be between $20.9 billion and $21.0 billion, representing growth of 32% to 33% YoY.
- Total Revenue: Expected in the range of $3.345 billion to $3.355 billion, representing growth of 32% YoY.
- Diluted Non-GAAP Net Income per Share: Expected to be between $0.96 and $0.98.
Analyst View:
Overall, while the revenue growth is commendable and reflects strong market demand, the operating loss and the challenges in achieving GAAP profitability are concerning. Investors should remain cautious, as the divergence between GAAP and non-GAAP results may lead to questions about the company's financial health. The guidance for the next quarter is promising, but execution will be key to maintaining investor confidence.
Forward Catalyst:
Investors should closely monitor Palo Alto Networks' ability to manage its costs effectively in the upcoming quarter, as well as the integration of its recent acquisitions. The performance of the Next-Generation Security segment will be critical, especially as the company aims to achieve a 40% adjusted free cash flow margin by FY28. Additionally, any updates on strategic initiatives or partnerships that could enhance growth will be important to watch.
Here are the extracted tables from the press release:
Preliminary Condensed Consolidated Statements of Operations
(In millions, except per share data)
Note: All amounts are in thousands.
| Three Months Ended | Nine Months Ended | |||
|---|---|---|---|---|
| April 30, 2026 | 2025 | April 30, 2026 | 2025 | |
| Revenue: | $594,000 | $453,000 | $1,542,000 | $1,228,000 |
| Product | ||||
| Subscription and support | $2,408,000 | $1,836,000 | $6,528,000 | $5,457,000 |
| Total revenue | $3,002,000 | $2,289,000 | $8,070,000 | $6,685,000 |
| Cost of revenue: | ||||
| Product | $167,000 | $101,000 | $371,000 | $277,000 |
| Subscription and support | $807,000 | $518,000 | $1,926,000 | $1,495,000 |
| Total cost of revenue | $974,000 | $619,000 | $2,297,000 | $1,772,000 |
| Total gross profit | $2,028,000 | $1,670,000 | $5,773,000 | $4,913,000 |
| Operating expenses: | ||||
| Research and development | $734,000 | $494,000 | $1,773,000 | $1,480,000 |
| Sales and marketing | $1,161,000 | $793,000 | $2,804,000 | $2,271,000 |
| General and administrative | $316,000 | $164,000 | $673,000 | $416,000 |
| Total operating expenses | $2,211,000 | $1,451,000 | $5,250,000 | $4,167,000 |
| Operating income (loss) | -$183,000 | $219,000 | $523,000 | $746,000 |
| Interest expense | $0 | -$1,000 | $0 | -$3,000 |
| Other income, net | $27,000 | $93,000 | $282,000 | $261,000 |
| Income (loss) before | ||||
| income taxes | -$156,000 | $311,000 | $805,000 | $1,004,000 |
| Provision for income taxes | $21,000 | $49,000 | $216,000 | $124,000 |
| Net income (loss) | -$177,000 | $262,000 | $589,000 | $880,000 |
| Net income (loss) per share | -$0.22 | $0.39 | $0.81 | $1.33 |
| Basic | ||||
| Net income (loss) per share | -$0.22 | $0.37 | $0.79 | $1.24 |
| Diluted | ||||
| Weighted-average shares used | ||||
| to compute net income per | 801,000 | 665,000 | 729,000 | 659,000 |
| share, basic | ||||
| Weighted-average shares used | ||||
| to compute net income per | 801,000 | 707,000 | 744,000 | 708,000 |
| share, diluted |
Preliminary Condensed Consolidated Balance Sheets
(In millions)
Note: All amounts are in millions.
| Assets | April 30, 2026 | July 31, 2025 | |
|---|---|---|---|
| Current assets: | (unaudited) | ||
| Cash and cash equivalents | $2,364,000 | $2,269,000 | |
| Short-term investments | $747,000 | $635,000 | |
| Accounts receivable, net | $2,852,000 | $2,965,000 | |
| Short-term financing receivables, net | $591,000 | $715,000 | |
| Short-term deferred contract costs | $454,000 | $419,000 | |
| Prepaid expenses and other current assets | $705,000 | $520,000 | |
| Total current assets | $7,713,000 | $7,523,000 | |
| Property and equipment, net | $506,000 | $387,000 | |
| Operating lease right-of-use assets | $678,000 | $347,000 | |
| Long-term investments | $3,881,000 | $5,555,000 | |
| Long-term financing receivables, net | $779,000 | $1,002,000 | |
| Long-term deferred contract costs | $551,000 | $586,000 | |
| Goodwill | $21,902,000 | $4,567,000 | |
| Intangible assets, net | $7,283,000 | $763,000 | |
| Deferred tax assets | $2,380,000 | $2,424,000 | |
| Other assets | $593,000 | $422,000 | |
| Total assets | $46,266,000 | $23,576,000 | |
| Liabilities and stockholders’ equity | |||
| Current liabilities: | |||
| Accounts payable | $293,000 | $232,000 | |
| Accrued compensation | $680,000 | $608,000 | |
| Accrued and other liabilities | $760,000 | $846,000 | |
| Deferred revenue | $7,113,000 | $6,302,000 | |
| Short-term convertible senior notes | $160,000 | $0 | |
| Total current liabilities | $9,006,000 | $7,988,000 | |
| Long-term convertible senior notes | $1,192,000 | $0 | |
| Long-term deferred revenue | $6,492,000 | $6,450,000 | |
| Deferred tax liabilities | $259,000 | $89,000 | |
| Long-term operating lease liabilities | $719,000 | $338,000 | |
| Other long-term liabilities | $930,000 | $887,000 | |
| Total liabilities | $18,598,000 | $15,752,000 | |