TenQ

The Palo Alto Networks story

Palo Alto Networks provides enterprise cybersecurity, with the central question whether combining network, cloud and identity protection can sustain growth while absorbing acquisition costs and stock compensation.

Written from Palo Alto Networks's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $392.09share price, last close
  • $320.7Bmarket value
  • 19/36TenQ Score checks passed
  • 34.8%growth a year the price assumes

The story in brief

  • Security subscriptions expand. Next-Generation Security annual recurring revenue grew 63% to $9.10 billion in the quarter to July 2026, with nearly $1 billion added.
  • Cash and earnings diverge. Adjusted free cash flow reached $1.3 billion in the quarter to July 2026, but Palo Alto Networks reported a GAAP net loss of $282 million.
  • Growth expectations remain high. The reverse DCF implies annual growth of 34.8% in free cash flow after stock pay for ten years, above the TenQ check's 21.5% bar.

What drives the business

  • Palo Alto Networks aims to replace customers' separate security products with integrated platforms, with the $21.1 billion CyberArk acquisition making identity security a core part of that strategy.
  • Its Network & AI Security platform includes firewalls, Prisma Access for secure remote connectivity and Prisma AIRS for AI protection, while Cortex combines security operations, cloud protection and observability, and Idira protects human, machine and AI identities.
  • Chronosphere added monitoring of infrastructure, applications and AI workloads, while the Console acquisition announced with the July 2026 results is intended to extend Cortex into automated enterprise workflows.
  • Revenue grew 34% to $3.41 billion in the quarter to July 2026, alongside the 63% increase in Next-Generation Security annual recurring revenue, a measure that excludes hardware and legacy offerings.
  • Remaining performance obligations, contracted revenue not yet recognized, grew 34% to $21.2 billion at the end of July 2026.

What the price assumes

At $392.09 per share, the reverse DCF implies that free cash flow after stock pay grows 34.8% a year for ten years, using a 10.2% discount rate.

Palo Alto Networks delivered 39.0% annual growth on that measure over the last 10 years, but the TenQ check sets a 21.5% bar by slowing that record halfway toward 4%.

The implied growth exceeds that slower-growth bar, while the free cash flow yield of 1.3% is below its historical 4.2%.

Value PANW on your own assumptions

What could change the story

  • CyberArk cost more than all other acquisitions combined at $8.8 billion, making integration and the realization of expected benefits especially important to the platform strategy.
  • Stock compensation of $1.8 billion accompanied $4.1 billion of free cash flow over the last twelve months, and the share count rose 11.6% over 3 years.
  • The operating margin of 6.1% trails the TenQ sector benchmark of 14.5%, while higher stock compensation, acquisition costs and changes in the value of convertible notes and capped calls contributed to the July 2026 quarterly GAAP loss.
  • The near-term liquidity check fails at 0.87 against a 1.50 bar, although cash and short-term investments of $3.1 billion exceed total debt of $1.9 billion.
  • Competition from cloud providers' native security tools, customer usage optimization and potential product vulnerabilities could weaken growth or complicate the move toward integrated platforms.

What to watch next

  • For the fiscal first quarter of 2027, management expects Next-Generation Security annual recurring revenue of $9.54 billion to $9.56 billion and revenue of $3.300 billion to $3.310 billion.
  • For fiscal 2027, its outlook calls for Next-Generation Security annual recurring revenue of $11.075 billion to $11.175 billion and revenue of $14.10 billion to $14.20 billion.
  • The fiscal 2027 adjusted free cash flow margin outlook is 38.0%, compared with 38.4% in fiscal 2026, making the reconciliation between adjusted cash flow and free cash flow important.
  • GAAP operating income, stock compensation, acquisition charges and diluted share counts will show whether platform expansion is translating into stronger earnings without further dilution.

Sources

Back to the PANW report