Palo Alto’s beat and raise proves CyberArk deal was announced from a position of strength
Palo Alto Networks shares jumped Monday evening after the cybersecurity firm posted a better-than-expected quarter and provided a first look at guidance for its next fiscal year. These strong results should ease concerns that the $25 billion CyberArk deal was masking a slowdown in the core business. Revenue for the company’s fiscal 2025 fourth quarter increased 16% year over year to $2.54 billion, exceeding the Wall Street consensus estimate of $2.5 billion, according to LSEG. Adjusted earnings per share (EPS) increased 27% to 95 cents in the quarter, ahead of the 88-cent LSEG consensus estimate. PANW YTD mountain Palo Alto Networks YTD Shares rose about 5% in after-hours trading to about $185. The move would put the stock back in positive territory for 2025, though the stock was still down from $204 when the company’s interest in CyberArk was first reported. Bottom line It’s been a rocky earnings season so far for the cybersecurity stocks, with Fortinet and Check Point getting hammered after reporting, and Cisco Systems’ security revenue significantly missing its consensus estimate. But Palo Alto Networks is a best-of-breed company, and it proved why Monday night with solid beats across all the key metrics: revenue, adjusted EPS, adjusted free cash flow margin, next-generation security annual recurring revenue (ARR), and total remaining performance obligation (RPO). The company also issued upside guidance for its fiscal year 2026. Now that we’ve seen the quarter and upbeat outlook, the CyberArk acquisition — which sent Palo Alto shares from $204.50 before the deal was announced to a low of about $167 about one week ago — shouldn’t be perceived as a defensive move to help a struggling core business. Palo Alto is playing offense by adding a leader in Identity security to its portfolio at a time when management believes the market will inflect in the next 12 to 24 months due to the emergence of agentic AI. “If you believe that we have been able to identify inflections in a good way at Palo Alto Networks, it is important for you to believe that we have this one right as well,” CEO Nikesh Arora said on the earnings call. Why we own it We believe cybersecurity is a secular growth market, as bad actors are relentless and companies simply cannot afford not to invest in defense. It is a never-ending arms race. We believe Palo Alto Networks, in particular, is uniquely positioned to thrive due to its best-in-class tools and a broad product portfolio that allows it to provide an all-encompassing “platform” solution to cybersecurity. Competitors : CrowdStrike (also a Club stock), Fortinet , Cisco Systems Last buy : Aug. 11, 2025 Initiation : Feb. 15, 2023 Any deal of this size comes with execution risk, creating an overhang on the stock until management proves otherwise. However, we have great confidence in Arora’s ability to deliver, given his extensive background in deal-making. That’s a big reason why we upgraded the stock to our 1 rating when Arora explained the deal on CNBC and added to our position last Monday. We’re reiterating our buy-equivalent 1 rating and our $225 price target. Commentary Palo Alto Networks and the term “platformization” have now become synonymous. It’s been about 18 months since the company announced a strategic shift toward accelerated “platformization” of its cybersecurity offerings. This strategy is all about getting customers to buy entire suites of products and consolidate their cybersecurity spending with Palo Alto. It’s a change from the old way client companies used to buy individual products from different cybersecurity vendors. By accelerating a platform strategy, Palo Alto has said it would lead to more market share, bigger deals, and higher ARR per customer, as well as better security outcomes and lower churn rates. Palo Alto Networks set a new record for platformization in the quarter, bringing the total count to 1,400. That’s up from 1,000 one year ago and keeps the company on track to reach 2,500 to 3,500 total platformizations by fiscal year 2030. “The record-breaking number of platformization deals this quarter demonstrates that customers are not just buying products, they are buying into a strategic partnership,” Arora explained on the earnings call. “We believe that integrated best-to-beat platforms deliver superior security outcomes, and our customers are validating this conviction by making larger, more strategic commitments with us than ever before.” We’re encouraged by how the company is seeing strong growth from its largest customers. It had 156 customers with over $5 million in next-gen security ARR in the fourth quarter, up 51% year over year. It had 51 customers with over $10 million in next-gen security ARR, up 50% year over year. One of the big wins in the quarter was a $111 million deal with a leading global consulting firm. Another big transaction was a $61 million deal with a global financial services firm. A third big win was a $33 million deal with a large U.S. insurance provider. Palo Alto does not disclose the names of its clients. Guidance For Palo Alto’s full-year fiscal 2026, here’s what the company expects. All estimates are sourced from FactSet. Total revenue in the range of $10.48 billion to $10.53 billion. This midpoint of $10.5 billion is above the consensus estimate of $10.42 billion. Non-GAAP earnings per share (EPS) in the range of $3.75 to $3.85, which at the midpoint of $3.80 greatly exceeds the $3.67 consensus estimate. GAAP stands for generally accepted accounting principles. Adjusted free cash flow margin in the range of 38% to 39%. This implies adjusted free cash flow of about $4 billion, which is above the consensus estimate of $3.9 billion. The adjusted free cash flow margin is calculated by dividing adjusted free cash flow by revenue. RPO of $18.6 billion to $18.7 billion, which is well above the consensus estimate of $18.12 billion. Next-generation security ARR of $7 billion to $7.1 billion, which is a beat versus the $6.94 billion consensus estimate. The company’s outlook for the fiscal 2026 first quarter was in line/better than expected across every major line item. Here management expects. Revenue in the range of $2.45 billion to $2.47 billion. Adjusted EPS in the range of 88 cents to 90 cents. Next-gen security ARR of $5.82 billion to $5.84 billion. RPO of $15.4 billion to $15.5 billion. (Jim Cramer’s Charitable Trust is long PANW, CSCO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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