Shares of Palo Alto Networks Inc. fell about 2% in late trading today after the cybersecurity company beat Wall Street targets in its fiscal fourth quarter and guided above consensus for the year ahead — though not on margins. The stock had already dropped more than 5% during the regular session.

For the quarter that ended on July 31, Palo Alto reported adjusted earnings of $1.02 per share, up from 95 cents a year earlier, on revenue of $3.41 billion, up 34% year-over-year. Analysts were expecting 98 cents per share on revenue of $3.35 billion.

Subscription and support accounted for $2.67 billion of the total. Product revenue, the smaller and slower line, rose to $738 million from $574 million.

Deals closed earlier in the year pushed the net result into the red. Palo Alto reported a net loss of $282 million, or 35 cents per share, against net income of $254 million, or 36 cents, a year earlier. Amortization of acquired intangible assets, acquisition costs and a $524 million noncash charge on convertible notes that came with the acquisition of CyberArk Software Ltd. accounted for most of the swing, and adjusted net income came in at $853 million, up from $673 million.

Next-generation security annual recurring revenue, the measure the company uses to track the platform business it is betting on, grew 63%, to $9.10 billion. Net new next-generation ARR was nearly $1 billion in the quarter. Remaining performance obligations rose 34%, to $21.2 billion, clearing $20 billion for the first time.

Operating activities generated $1.4 billion of cash during the quarter, up from $1 billion, and adjusted free cash flow came to $1.3 billion against $954 million a year ago. Revenue for the full fiscal year totaled $11.48 billion, up 24%, with an adjusted free cash flow margin of 38.4%.

Chairman and Chief Executive Nikesh Arora put the demand backdrop down to artificial intelligence. Advances in the technology have pushed cybersecurity to the top of the chief information officer priority list, he said in the earnings release. He called them “durable tailwinds” for the $20 billion next-generation annual recurring revenue target the company has set for fiscal 2030.

Chief Financial Officer Dipak Golechha credited the Network and AI Security, Cortex and Idira platforms for a quarter that beat guidance “across the board.” The fiscal 2028 target of a 40% adjusted free cash flow margin is unchanged, he said.

Palo Alto also disclosed alongside the results that it has acquired Console Inc., an AI-native platform for running agentic workflows across enterprise operations. Terms were not disclosed. Console will expand the role of Cortex across the broader enterprise, the company said.

Guidance was the bright spot. Palo Alto is forecasting first-quarter revenue of $3.30 billion to $3.31 billion and adjusted earnings of 96 to 98 cents per share, against consensus of $3.22 billion and 93 cents. Full-year revenue of $14.10 billion to $14.20 billion and adjusted earnings of $4.16 to $4.19 per share also top the $13.79 billion and $4.11 analysts had modeled. The company expects next-generation security ARR to reach $11.075 billion to $11.175 billion by the end of fiscal 2027, remaining performance obligations of $25.2 billion to $25.4 billion and an adjusted operating margin of 29.5%.

Despite the beats, margins are the likely culprit for the after-hours drop. Adjusted gross margin narrowed about a percentage point from a year earlier to 74.8%, and Golechha told analysts that cloud hosting costs will grow faster than revenue in fiscal 2027.

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