Palo Alto Networks Inc (PANW) Q4 2025 Earnings Call Highlights: Surpassing $10 Billion Revenue ...

Total Revenue: $2.54 billion, up 16% year over year. Product Revenue Growth: 19%, driven by software form factors. Services Revenue Growth: 15%, with subscription revenue up 17% and support revenue up 11%. Next Generation Security ARR: $5.58 billion, up 32% year over year. Operating Margin: 28.8%, expanded by 340 basis points, above 30% for the first time. Free Cash Flow Margin: 38% for the third consecutive year. Remaining Performance Obligation (RPO): $15.8 billion, up 24% year over year. Net Retention Rate: 120% among platform customers. Gross Margin: Total gross margin at 75.8%, with product gross margin at 76.8%. Geographic Revenue Growth: Americas up 15%, EMEA up 19%, JAPAC up 13%. Diluted Non-GAAP EPS: $0.95, above the high end of the guided range. Fiscal Year 2026 Revenue Guidance: $10.475 to $10.525 billion, an increase of 14%. Fiscal Year 2026 Operating Margin Guidance: 29.2% to 29.7%. Fiscal Year 2026 Diluted Non-GAAP EPS Guidance: $3.75 to $3.85, an increase of 12% to 15%.

Warning! GuruFocus has detected 4 Warning Sign with PANW.

Release Date: August 18, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Palo Alto Networks Inc (NASDAQ:PANW) achieved a significant milestone by surpassing a $10 billion revenue run rate, marking a strong finish to the fiscal year. The company reported robust bookings growth, the highest in 2.5 years, driven by strong renewals and upsells across its platforms. Next Generation Security ARR grew 32% year over year, with strong contributions from SASE, XSIAM, and software firewalls. Palo Alto Networks Inc (NASDAQ:PANW) expanded its operating margin and delivered 38%-plus free cash flow margins for the third consecutive year. The company is strategically entering the identity security market with the proposed acquisition of CyberArk, aiming to define the next chapter of cybersecurity for the AI era.

Negative Points

The earnings call highlighted the risks and uncertainties associated with forward-looking statements, which could impact actual results. Despite strong performance, the company faces a fragmented IT security market, which poses challenges for consolidation and market share growth. The transition to deferred payments has impacted free cash flow visibility, although the company expects improvement in the future. Palo Alto Networks Inc (NASDAQ:PANW) is navigating a competitive landscape in cloud security, with the need to differentiate its offerings amidst acquisitions like Wiz. The company is undergoing a leadership transition with the retirement of its founder, Nir Zuk, which could impact its innovation trajectory.

Story Continues

Q & A Highlights

Q: Can you provide a strategic view on security consolidation and how agentic AI is influencing this market need? A: Nikesh Arora, CEO, explained that security consolidation is a significant focus for Palo Alto Networks, with platformization being a key strategy. The company aims to increase its market share by convincing customers to consolidate their security spend with Palo Alto Networks, leveraging the benefits of integrated platforms. Agentic AI accelerates the need for consolidation as it requires consistent platforms for effective security, highlighting the importance of integrated data and real-time response capabilities.

Q: How much of the recent strong bookings performance is due to execution versus macroeconomic factors or platformization benefits? A: Nikesh Arora, CEO, attributed the strong performance primarily to the platformization strategy and customer conviction in Palo Alto Networks' ability to provide an evergreen path to new technologies. While macroeconomic conditions are stable, the company's innovation and ability to offer comprehensive solutions are driving growth. The focus on platformization and customer trust in Palo Alto's roadmap are key factors in their success.

Q: Why is Palo Alto Networks gaining share in the software firewall market, and how does this compare to hardware appliances in terms of lifetime value? A: Lee Klarich, Chief Product Officer, noted that Palo Alto Networks' focus on cloud-native innovations and seamless integration in cloud environments has driven success in the software firewall market. Nikesh Arora added that software firewalls offer efficiency and scalability advantages over hardware, with faster deployment and upgrades. The lifetime value of software firewalls is significant, as evidenced by large deals, and they provide a more efficient security solution compared to hardware.

Q: How is the mix within Next-Generation Security (NGS) ARR evolving, and can virtual firewalls contribute significantly to growth? A: Dipak Golechha, CFO, stated that the transition from legacy subscriptions is largely complete, with growth now driven by next-generation products like software firewalls, SASE, and XSIAM. Virtual firewalls are expected to be durable growth drivers, contributing significantly to NGS ARR as they align with cloud transformation trends.

Q: Can you elaborate on the momentum of enterprise browsers and the implications of browser wars? A: Nikesh Arora, CEO, explained that the acquisition of a browser business was initially to cover specific use cases, but the rise of agentic tasks in consumer browsers has highlighted the need for secure enterprise browsers. As consumer browsers integrate more agentic features, enterprises will require secure browsers to maintain control and security, making secure browsers a critical component of the SASE stack.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

View Comments