Netskope Inc.’s latest quarter delivered a solid beat and a raise, but the company’s story goes beyond the numbers. It demonstrated improving operating discipline, a meaningful rebound in net-new annual recurring revenue, and early evidence that artificial intelligence security could become a material expansion engine — even if it is not yet a near-term revenue cure-all.

The market’s response to Netskope has been surprisingly cautious. The company is still early in its public life, investing heavily in its NewEdge infrastructure and navigating AI’s uncertain economics. Yet it is puzzling that the stock remains below its $18 IPO price despite a quarter that showed accelerating revenue, improving retention, a raised full-year outlook and better-than-expected operating leverage. Netskope closed at $13.75 before the earnings release and traded at $15.51 afterward, still below the IPO price.

AI should create a “rising tide” that lifts the security sector. I believe one challenge for the company is that the security industry is a confusing mesh of companies, many of which partially overlap, so creating an “apples-to-apples” comparable for Netskope isn’t easy. This is where time in the market will help it, as the investor community will have more data points to connect back to historical and future trends. With that being said, here are five things investors may have overlooked:

1. Net-new ARR finally turned the right way

The headline numbers were strong: Fiscal second-quarter revenue rose 29% year-over-year, to $220.5 million, beating the company’s guidance range, and annual recurring revenue reached $899 million, up 27%. But the more important metric was net-new ARR: $54 million, up 9% year-over-year.

That matters because net-new ARR had become one of the most important parts of the Netskope story after it declined in the prior quarter. In her earnings note, Rosenblatt Securities analyst Catharine Trebnick characterized the result as a pivotal positive inflection, since $54 million beat consensus by $6.7 million and marked a 23-point swing in year-over-year growth, moving from the prior quarter’s decline.

For investors, this metric matters. Revenue is a lagging indicator in a subscription business. Net-new ARR more closely reflects whether sales execution, platform demand, and customer expansion are moving in the right direction. Netskope’s quarter does not erase the execution question, but it provides evidence that demand did not break structurally.

The company’s raised full-year revenue guidance reinforces that point. Netskope now expects fiscal 2027 revenue of $888 million to $892 million, up from the prior $879 million to $883 million range. That is not an aggressive raise, but it is noteworthy: Management is signaling confidence while retaining room for the seasonally stronger second half and the ongoing ramp of its sales organization.

2. The platform model is taking hold

Investors often focus on the AI narrative and overlook the less flashy data points that show Netskope’s broader platform strategy is working. Net revenue retention improved to 114%, gross retention reached a company record, and remaining performance obligations grew 36% year-over-year, to $1.35 billion.

The underlying driver is broader product adoption. Fifty-nine percent of customers now use four or more Netskope products, up from 51% a year earlier; 41% use at least five products, up from 35%. The number of customers contributing more than $100,000 in ARR grew 23% to 1,686, representing 87% of total ARR.

That is what investors should expect from a company positioning itself as a converged security, networking, data protection and AI-security platform. Growth doesn’t depend solely on landing new logos. It increasingly comes from cross-selling and consolidation within the installed base.

As Chief Executive Sanjay Beri (pictured) stated on the earnings call, enterprises often start with “one or two core use cases” and expand over successive years. “With average customers having four or five products, we have a lot of ability to upsell for many, many, many years,” he said.

Trebnick made the same point in her post-earnings research, arguing that “cross-sell, not new logos alone, is carrying net adds.” That matters strategically because a broader product footprint can make customers stickier and reduce the risk that Netskope becomes merely another point-product supplier in a crowded secure access service edge and security service edge market.

3. AI security is promising — but investors should model it carefully

The company’s AI security pipeline is gaining traction. About 13% of the pipeline is already in or entering proof-of-concept deployments. Netskope cited early wins in financial services, technology and manufacturing for products such as Agentic Broker, AI Guardrails, AI Gateway and its AI Command Center.

However, the key word is pipeline. Beri was emphatic that enterprises will follow their normal buying process: evaluate the technology, conduct a proof of concept, secure budget, obtain executive approval and move through procurement. That process generally takes six to 12 months.

“We see the POCs building,” Beri said. “And as a result, we see the ARR building.” This is an attractive story, but it is not a reason to extrapolate a sudden AI-driven growth explosion into the next quarter.

The more nuanced point is that Netskope is creating a potentially different monetization model. Beri said an agent is not a user, so it makes little sense to price certain AI-security capabilities per seat. Agentic Broker is priced by transaction, while some AgentSkope capabilities are priced on an outcome basis — for example, resolving relevant data-loss-prevention cases amid thousands or millions of alerts.

That creates upside, but it also raises a new investor question: Can Netskope help customers forecast, govern and accept transaction-based spending? In a post-earnings discussion, Beri told me that Netskope intentionally avoided token-based pricing because customers did not understand it well. Instead, the company provides usage visibility, calculators based on observed activity, and relatively easy top-up mechanisms.

The comparison is not with traditional seat-based security software. It is more like the enterprise transition from fixed infrastructure purchases to consumption-based cloud economics, where cost visibility and FinOps discipline become part of the product experience.

4. Margin gains are real, but cash conversion remains the test

Netskope reported a non-GAAP operating margin of negative 9%, an 11-percentage-point year-over-year improvement and well ahead of its guidance. Gross margin reached 77%, up about two points from the prior year.

That improvement is worth highlighting. In a market that has become far more demanding of efficient growth, Netskope demonstrated that revenue scale and a common platform architecture can drive operating leverage. The company also reduced its workforce by about 5%, reallocating resources to AI infrastructure, tokens, research and development, and other areas it considers more strategic.

But investors should distinguish accounting and operating leverage from free-cash-flow conversion. Netskope generated negative free cash flow of $29.8 million in the quarter and expects capital expenditures to be about 4% to 5% of revenue for the year, primarily to continue investing in its NewEdge private cloud network.

On the earnings call, Beri said the company is transitioning customers to annual billing, a move that temporarily delays cash collections but should improve visibility into customer commitments. The transition should be substantially complete by mid-next fiscal year.

5. The stock’s discount reflects execution risk, not a lack of narrative

At $13.75 before earnings, Netskope traded well below its $18 IPO price, despite operational improvements. This reflects an enterprise value-to-sales multiple of about six times, well below the median of 8.4 times and the 13.9 times average among similar publicly traded security companies.

The company is expanding revenue by nearly 30%, improving retention, lifting guidance, demonstrating platform-led cross-sell, investing in a globally differentiated network, and establishing an AI-security position that fits its existing inline traffic-enforcement architecture.

During my call with Beri, we discussed security’s role in AI. He believes, as do I, that the right security platform can enable customers to move faster with AI rather than be a traditional bottleneck. “Our goal is to let organizations leverage AI quickly while minimizing risk,” Beri said.

Though I am not a stock analyst, that statement is a strong investment thesis. Netskope is trying to become less a provider of security controls and more the trusted control plane that lets enterprises deploy cloud, generative AI and autonomous agents at speed. The latest quarter did not prove the entire thesis, but it did show more evidence than the current share price appears to acknowledge.

Zeus Kerravala is a principal analyst at ZK Research, a division of Kerravala Consulting. He wrote this article for SiliconANGLE. 

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