Palo Alto Beats Q4 Estimates; Stock Drops 8.3%

Palo Alto Networks reported stronger-than-expected adjusted earnings and revenue for its fiscal fourth quarter, but its stock fell 8.3% after the company posted a GAAP loss and gave a free cash flow margin outlook for fiscal 2027 that some investors found conservative.

For the quarter, revenue was $3.41 billion, up 34% year over year and above the analyst estimate of $3.35 billion. Adjusted earnings were $1.02 per share versus the $0.98 estimate. GAAP results showed a loss of $0.35 per share, compared with a profit of $0.36 in the same quarter a year earlier.

The company generated $1.3 billion in free cash flow in the quarter. For fiscal 2026 Palo Alto reported $11.5 billion in revenue, GAAP earnings of $0.40 per share and annual free cash flow of $4.1 billion, a 17% increase from the prior year.

Annual recurring revenue for the Next‑Generation Security portfolio reached $9.1 billion, a 63% year‑over‑year increase. Remaining performance obligations, a measure of contracted future revenue not yet recognized, rose 34% to $21.2 billion, above the consensus figure of roughly $20.9 billion.

For the fiscal first quarter the company expects revenue of $3.30 billion to $3.31 billion and adjusted EPS of $0.96 to $0.98, above analyst forecasts. For fiscal 2027 Palo Alto forecast revenue of $14.10 billion to $14.20 billion and adjusted EPS of $4.16 to $4.19.

The company projected a free cash flow margin of 37.5% to 38% for fiscal 2027. BNP Paribas analyst Andrew DeGasperi flagged that range as below buy‑side expectations and a possible factor in the share decline.

Analysts retained upbeat long‑term views on the business. Cantor Fitzgerald kept an Overweight rating with a $425 price target. Piper Sandler raised its price target to $410 from $345 and kept an Overweight rating, citing a strong quarter and integration progress on recent acquisitions.

CEO Nikesh Arora described advances in artificial intelligence as providing “durable tailwinds” for cybersecurity as the company pursues a $20 billion annual recurring revenue target for Next‑Generation Security by fiscal 2030. The company reported that its Prisma AIRS offering surpassed $100 million in annual recurring revenue and that its observability business exceeded $500 million in ARR.

Shares had doubled year‑to‑date before the decline. Investors and analysts focused on subscription growth, contracted revenue and the company’s guidance for margins and free cash flow. Palo Alto will report fiscal first‑quarter results next quarter, with attention likely on margin trends and free cash flow generation.