Palo Alto Networks Revenue Jumps in Q4

Palo Alto Networks (PANW -0.36%), a leading global cybersecurity provider, reported its fiscal fourth quarter 2025 financial results on August 18, 2025. The company delivered results that were well ahead of analyst expectations, with non-GAAP earnings per share (EPS) at $0.95, surpassing estimates of $0.77. Revenue (GAAP) came in at $2.5 billion, topping GAAP projections of $2.279 billion. Despite strong sales growth, GAAP net income decreased to $253.8 million from $357.7 million compared to Q4 FY2024, share-based compensation, and a notable tax provision adjustment. The quarter showed robust top-line momentum and highlighted the company’s position in advanced security, although profitability based on GAAP dropped sharply.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q3 2025 earnings report.

Company Overview and Key Business Focus

Palo Alto Networks is a major global player in cybersecurity, delivering network protection, cloud security, and threat intelligence products to over 70,000 organizations worldwide. Its offerings protect everything from traditional corporate networks to public cloud environments and employee devices.

The company’s strategy centers on platformization, or uniting many security functions into integrated platforms rather than offering stand-alone products. Key to this approach is the development of advanced products that use artificial intelligence (AI), machine learning (ML), and automation. Palo Alto’s recent focus areas include driving growth in its Next-Generation Security annual recurring revenue (NGS ARR), expanding cloud security capabilities through products like Prisma Cloud (a cloud-native security platform), and investing in AI-enhanced automation, notably its Cortex XSIAM security operations product and Prisma AIRS for AI runtime protection. Success depends on delivering innovation, winning large “platformization” contracts, providing cloud-native coverage, and continually expanding customer relationships through unified solutions.

Quarter Highlights: Momentum and Challenges

The quarter saw significant momentum in high-growth areas, particularly Next-Generation Security. The company’s Next-Generation Security ARR rose 32% year over year, closing at $5.6 billion. This growth was driven by customer demand for unified platforms and AI-powered products. The number of large platformization deals, in which customers implement multiple Palo Alto Networks platforms as integrated solutions, grew sharply to approximately 1,250 among its top 5,000 customers, a 70% year-over-year increase in the number of customers with multiple platformizations.

Cloud security also played a vital role, with Prisma Cloud, the firm’s cloud-native protection offering, securing more multi-cloud environments for enterprise clients. Prisma Access Browser, a secure cloud browser, contributed a third of all new Prisma Access seats, highlighting the importance of browser security as applications and data shift to the cloud. SASE customers—buyers of the Secure Access Service Edge bundle for network and cloud security—rose by 22% year-over-year.

The artificial intelligence and machine learning portfolio saw notable acceleration. Cortex XSIAM—a security operations automation product—was identified as the company's fastest-growing product ever. Its ARR grew over 200% year-over-year, with total AI-related ARR reaching roughly $400 million, up over 2.5 times year over year. The company also launched Prisma AIRS, an AI runtime security product, broadening the scope of its AI protection services, and announced the acquisition of Protect.ai, a move intended to advance its performance in AI security and model scanning.

Financially, the company delivered strong top-line expansion. Product revenue rose 19% year over year in the fiscal fourth quarter, while Subscription and support income (GAAP) increased by 15.5% year over year. Product gross margin reached 78.4%, and the overall gross margin landed at 76% in the fiscal fourth quarter, reflecting ongoing success in software and services mix. Guidance for FY2026 is a non-GAAP operating margin in the range of 29.2% to 29.7%. However, GAAP net income fell 29.1%, partly due to higher GAAP share-based compensation (up 29.8%) and a sharp change in tax provisions, the latter linked to one-time deferred tax accounting adjustments. These issues led to more pronounced volatility in reported profits.

Looking Forward: Outlook and Investor Focus

Management projects another period of strong growth. The company expects total revenue between $2.45 billion and $2.47 billion for Q1 FY2026, an increase of 15%. Projected non-GAAP diluted EPS is $0.88 to $0.90. The outlook includes non-GAAP EPS of $3.75 to $3.85 for FY2026, revenue (GAAP) rising to $10.475 billion to $10.525 billion (up 14%), Next-Generation Security ARR of $7.0 billion to $7.1 billion, and adjusted free cash flow margin of 38.0% to 39.0%.

Key monitoring points for investors will be the pace of platformization deal wins, continuing growth and customer adoption in AI-driven security (especially with Cortex XSIAM and Prisma AIRS), and sustained expansion in cloud and hybrid security. Analysts will also be watching for ongoing margin improvement, how the company addresses increased competition from other cybersecurity firms.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.