Palo Alto Networks trims profit outlook after M&A costs; raises revenue guide

Palo Alto Networks cut its full-year adjusted earnings-per-share outlook as acquisition and integration costs climbed, a move that knocked the stock down about 8% in extended trading and signaled near-term margin pressure. At the same time the firm raised its annual revenue range, reflecting rising customer spend on modern security platforms and demand for AI-focused defenses.

Acquisition-related charges rose sharply quarter-over-quarter, with transaction costs of $24 million versus $10 million a year earlier, driven by recent purchases including CyberArk, Chronosphere and the Israeli startup Koi. Management flagged a $2.3 billion expected cash outflow in the coming quarter for the CyberArk deal after spending $2.6 billion on Chronosphere the prior quarter, increasing near-term cash deployment and integration workload.

The revised fiscal 2026 adjusted EPS target was set to $3.65–$3.70, below the prior range of $3.80–$3.90, while the annual revenue outlook was raised to $11.28–$11.31 billion from about $10.50–$10.54 billion. For the next quarter Palo Alto expects revenue of roughly $2.94–$2.95 billion, above consensus compiled by LSEG, though its quarterly EPS projection of $0.78–$0.80 trails analyst estimates.

Operational performance still showed momentum: second-quarter revenue rose about 15% to $2.59 billion, and adjusted EPS of $1.03 outpaced expectations. But management warned that integrating larger targets—especially CyberArk—requires substantial reengineering, which compresses near-term margins even as it expands addressable markets.

Investors punished the guidance cut despite the revenue upgrade because profit per share is a primary valuation input; the share reaction reflected concern that M&A execution will weigh on margins for multiple quarters. For customers and channel partners, the deals signal deeper product convergence around identity security and observability, with AI-capable tooling as a core differentiator.

• Near-term cash commitments: $2.3B (CyberArk) and prior $2.6B (Chronosphere).
• Quarterly acquisition-related charges: $24M (Q2) vs $10M year-ago.
• Guidance pivot: adjusted EPS reduced to $3.65–$3.70; revenue guide raised to $11.28–$11.31B.

Strategically, the company is buying capabilities to counteract emergent, AI-driven attacks and to broaden total addressable market across identity security and cloud observability. The trade-off is clear: accelerated inorganic expansion is boosting top-line scale while transferring integration risk into the income statement and near-term cash flow. Market participants will watch upcoming quarters for evidence of successful assimilation of CyberArk and Chronosphere before re-rating the shares upward.