Acquisition related charges pushed Palo Alto Networks to a net loss even as its adjusted profit and recurring security revenue both beat expectations, and the company's own finance chief is already flagging rising cloud costs for next year.
Palo Alto Networks reported fiscal fourth quarter revenue of $3.41 billion, up 34 percent from a year earlier and above the $3.35 billion analysts had projected on average. Adjusted earnings came in at $1.02 a share, ahead of the 98 cent average estimate and up 7 percent from a year earlier. On a GAAP basis, the company reported a net loss of $282 million, or 35 cents a share, compared with net income of $253.8 million in the same quarter last year.
The gap between the two results comes largely from costs tied to Palo Alto Networks' acquisition strategy. The company recorded $295 million in integration related charges during the fiscal year tied to its purchase of CyberArk, and on the same day as this release announced another acquisition, of an artificial intelligence platform called Console, described as enabling agentic security capabilities. Terms of that deal were not disclosed.
Underneath the net loss, the metrics Palo Alto Networks uses to describe its underlying business kept growing. Next generation security annual recurring revenue, the company's primary growth metric, reached $9.1 billion, up 63 percent from a year earlier. Remaining performance obligations, a measure of contracted future revenue, rose 34 percent to $21.2 billion. The company generated $4.55 billion in operating cash flow and $4.11 billion in free cash flow for the full fiscal year, for an adjusted free cash flow margin of 38.4 percent. Chief executive Nikesh Arora told investors the company added “nearly $1 billion in net new” recurring revenue in the quarter alone, and pointed to autonomous AI agents and the spread of open source AI models as new sources of demand for the machine identity security Palo Alto Networks sells.
For the current quarter, Palo Alto Networks guided revenue to $3.30 billion to $3.31 billion and adjusted earnings to 96 cents to 98 cents a share, with next generation security recurring revenue expected to reach $9.54 billion to $9.56 billion. For the full 2027 fiscal year, it guided revenue to $14.1 billion to $14.2 billion and adjusted earnings to $4.16 to $4.19 a share, with an adjusted operating margin target of 29.5 percent, roughly flat with this year's level, and remaining performance obligations guided to $25.2 billion to $25.4 billion. Finance chief Dipak Golechha told analysts the company expects cloud hosting costs to grow faster than revenue next year as its software as a service business becomes a larger share of the total, an explicit signal that margin expansion is not part of the near term plan even as recurring revenue keeps compounding. Golechha reaffirmed longer range targets of $20 billion in next generation security recurring revenue by fiscal 2030 and a 40 percent adjusted free cash flow margin by fiscal 2028, a target already close to this year's 38.4 percent mark.
Palo Alto Networks shares had already fallen earlier in the day of the results, part of a broader slide across technology and software stocks tied to rising bond yields and geopolitical tension unrelated to the company's earnings. Shares then rose in after hours trading following the release. The stock fell 5.2 percent the next session, to $362.09, but that decline came alongside a broader market drop, with the S&P 500 down 0.7 percent and the Nasdaq Composite down about 1 percent the same day, making it unclear how much of the move, if any, reflects a reaction to Palo Alto Networks' results specifically.
Arora, addressing the company's acquisition pace directly, said acquisitions are not the company's primary strategy and that deals like CyberArk and Console are meant to accelerate delivery of capabilities Palo Alto Networks would otherwise build more slowly, noting that customer modernization efforts typically take one to three years rather than one quarter. That framing matters for how investors read the widening gap between GAAP and adjusted results. As long as Palo Alto Networks keeps acquiring companies to fill out its security platform, integration charges are likely to keep showing up in GAAP earnings even as the underlying subscription business expands.
Full fiscal year revenue reached $11.48 billion, up nearly 25 percent, while GAAP earnings per share fell 75 percent to 40 cents on the weight of acquisition costs, a gap investors will be watching to see whether it narrows or widens once Console is folded into the numbers, and once Golechha's flagged cloud cost pressure starts showing up in fiscal 2027 results.