Technology
Software - Infrastructure
$128.98B
15.3K
Palo Alto Networks is a global cybersecurity provider that offers a comprehensive suite of security platforms and services to protect enterprise users, networks, and clouds. The company's core business model is centered around its AI-powered next-generation firewalls and cloud-delivered security services, which are sold as products and subscriptions. Palo Alto Networks holds a leading market position due to its innovative technology and strong customer base.
Key insights and themes extracted from this filing
Total revenue increased 14.9% year-over-year to $9,221.5 million in fiscal 2025, following a 16.5% increase in fiscal 2024. Subscription and support revenue, which constitutes 80.5% of total revenue, grew 15.5% year-over-year to $7,419.6 million, indicating strong demand for recurring services.
Operating income more than doubled, increasing from $683.9 million (8.5% operating margin) in fiscal 2024 to $1,242.9 million (13.5% operating margin) in fiscal 2025. This improvement occurred even as gross margin slightly decreased from 74.3% to 73.4% year-over-year, suggesting enhanced control over operating expenses.
Net income decreased from $2,577.6 million in fiscal 2024 to $1,133.9 million in fiscal 2025. This significant change is primarily due to a $1,589.3 million tax benefit in fiscal 2024 from the release of a valuation allowance, contrasting with a $461.8 million tax provision in fiscal 2025.
The company completed the acquisition of IBM QRadar assets in August 2024 and Protect AI, Inc. in July 2025, and entered into a definitive agreement to acquire CyberArk Software Ltd. for an equity value of approximately $25 billion, expected to close in H2 FY26. These acquisitions aim to accelerate growth in the Cortex business and enhance AI security capabilities.
NGS ARR grew from $4.2 billion in fiscal 2024 to $5.6 billion in fiscal 2025, reflecting increased adoption of the company's product, subscription, and support offerings. This metric indicates robust performance and future revenue visibility from core next-generation security solutions.
Fiscal 2025 saw the introduction of several new AI-powered offerings, including Prisma Access Browser, new OT Security capabilities, Cortex Cloud, Prisma AIRS, and Cortex XSIAM 3.0. This aligns with the strategy to simplify customer security architectures by consolidating disparate point products into integrated platforms backed by AI and automation.
Operating income margin expanded significantly from 8.5% in FY2024 to 13.5% in FY2025, demonstrating management's ability to manage expenses effectively relative to revenue growth. This was achieved even with increased R&D and sales & marketing investments.
Employee headcount increased from 15,289 in fiscal 2024 to 16,068 in fiscal 2025, reflecting continued investment in the global sales force and R&D teams. This growth is aimed at expanding market reach and enhancing product development, particularly in AI-powered innovation.
Management actively monitors macroeconomic and geopolitical conditions, including hostilities in Israel and US-China tensions, which could impact operations and supply chains. The company also uses foreign currency forward contracts, with a notional amount of $1.5 billion as of July 31, 2025, to hedge currency exchange rate exposure.
The pending $25 billion CyberArk acquisition is expected to substantially change the business scope, introducing risks related to integration challenges, diversion of management attention, and increased competition in new product categories. Failure to realize anticipated synergies could adversely affect operating results and stockholder value.
The development and deployment of AI in products and operations present challenges such as flawed algorithms, biased datasets, and potential for technical, legal, or ethical problems. This could lead to reputational harm, legal liability under new AI regulations (e.g., in the E.U.), and adverse impacts on operating results.
The company faces ongoing and increasing cybersecurity risks from sophisticated threat actors, potentially making it a more attractive target due to its security solutions. Dependence on limited sources for key hardware components, especially outside the U.S., exposes the company to supply shortages, price increases, and geopolitical disruptions.
Palo Alto Networks' strategy to consolidate disparate point products into comprehensive AI-backed platforms (e.g., SASE, Cortex) is a key competitive differentiator. This approach seeks to provide more secure, faster, and cost-effective outcomes, allowing the company to compete favorably against a diverse set of rivals.
The company acknowledges intense competition from large companies like Cisco, Microsoft, and Alphabet, which possess greater financial, technical, and marketing resources, broader distribution, and more mature IP portfolios. This could lead to pricing pressures and challenges in maintaining market share.
Subscription and support revenue accounted for 80.5% of total revenue in fiscal 2025, growing 15.5% year-over-year. This significant recurring revenue stream, supported by a broad portfolio of offerings and a large end-customer base across over 180 countries, provides a stable foundation amidst competitive pressures.
Total operating expenses as a percentage of revenue decreased from 65.8% in fiscal 2024 to 59.9% in fiscal 2025, contributing to a significant improvement in operating income margin from 8.5% to 13.5%. This indicates effective cost control measures relative to revenue growth.
Inventory write-downs and excess manufacturing purchase commitment charges increased from $24.9 million in fiscal 2024 to $71.2 million in fiscal 2025. This suggests potential inefficiencies in forecasting demand or managing supply, impacting cost of product revenue.
Cost of subscription and support revenue increased 19.1% year-over-year in fiscal 2025, primarily due to increased cloud hosting service costs ($189.5 million YoY) and personnel costs ($52.9 million YoY). This reflects the growing adoption and expansion of the company's cloud-based subscription offerings.
Research and development expense increased 9.7% year-over-year to $1,984.1 million in fiscal 2025. This investment is strategically centered on expanding leadership in enterprise security through AI-powered innovation, enhancing integrated platforms, and developing new software and hardware capabilities.
During fiscal 2025, the company introduced several new offerings, including Prisma Access Browser, new capabilities in OT Security, Cortex Cloud, Prisma AIRS, and Cortex XSIAM 3.0. These products leverage AI and machine learning to address evolving threat landscapes and simplify security operations.
The acquisitions of IBM QRadar assets and Protect AI, Inc. in fiscal 2025, along with the pending CyberArk acquisition, are intended to enhance the company's AI security platform and expand its capabilities. These moves aim to integrate new technologies and talent to accelerate development in key priority areas.
Net cash used in investing activities increased by $694.8 million, from $1,509.9 million in fiscal 2024 to $2,204.7 million in fiscal 2025. This surge was primarily due to increased net cash payments for business acquisitions, such as IBM QRadar assets and Protect AI, and higher purchases of investments.
The company did not repurchase any shares during fiscal 2025, despite having $1.0 billion remaining under its share repurchase authorization. This suggests a prioritization of capital towards strategic acquisitions and R&D investments over share buybacks in the current period.
The 2025 Convertible Senior Notes were fully settled upon maturity in June 2025, with $965.6 million repaid in cash. This action reduced the company's debt obligations, although it also involved the issuance of 14.0 million shares of common stock for the conversion value in excess of the principal amount.
Palo Alto Networks is committed to limiting global warming to less than 1.5°C, implementing operational efficiencies, procuring 100% renewable electricity, and targeting greenhouse gas emissions reductions across its value chain. The company's recognition by CDP as a 'Supplier Engagement Assessment A-list' highlights progress in this area.
The company is integrating AI into its people programs and processes to build a more agile, skilled, and forward-thinking workforce, including AI-generated job descriptions and intelligent interview scheduling. This 'Attract & Hire' strategy aims to enhance talent acquisition and ensure employees are 'AI-readiness' capable.
The Security Committee, composed of independent directors and chaired by the chief product and technology officer, provides board oversight of enterprise security risk management. Six of the eleven board members possess expertise in cybersecurity, ensuring strong governance over security matters and related risks.
The company operates globally and is impacted by uncertain geopolitical conditions, including hostilities in Israel and the Russia-Ukraine war, as well as macroeconomic challenges like inflation and high interest rates. These factors can lead to slower demand, longer sales cycles, and increased costs, as highlighted in the risk factors.
Evolving data privacy laws (e.g., EU GDPR, UK Data Act 2025, CCPA) and emerging AI regulations are increasing compliance costs and potential legal liabilities. These regulatory changes could limit business operations, require significant expenditures for compliance, and impact the adoption of products in certain markets.
The enterprise security industry is characterized by rapid technological evolution, increasing sophistication of attacks, and a shift towards cloud computing and AI. Palo Alto Networks' focus on AI-powered platforms and cloud-delivered security services aligns with these trends, positioning it to capitalize on market demand for advanced protection.