TLDR
- Palo Alto Networks delivered Q1 earnings of 93 cents per share, surpassing the 89-cent estimate, with revenue hitting $2.47 billion.
- Shares declined 3% in after-hours trading despite earnings beat due to $3.35 billion Chronosphere acquisition announcement.
- The company paid roughly 21 times Chronosphere’s annual recurring revenue of over $160 million for the cloud observability platform.
- Full-year revenue guidance increased to $10.50-$10.54 billion with adjusted EPS forecast raised to $3.80-$3.90.
- Both Chronosphere and the pending $25 billion CyberArk deals are set to close in the second half of fiscal 2026.
Palo Alto Networks delivered a winning fiscal first quarter on Wednesday. The cybersecurity company reported adjusted earnings of 93 cents per share, clearing the 89-cent Wall Street estimate.
Revenue reached $2.47 billion for the period. That narrowly exceeded analyst projections of $2.46 billion and represented a 16% increase from the prior year’s $2.1 billion.
Despite beating on both top and bottom lines, the stock fell approximately 3% after hours. The negative reaction stemmed from the company’s simultaneous announcement of a major acquisition.
Palo Alto Networks, Inc., PANW
Chronosphere Deal Raises Eyebrows
Palo Alto Networks revealed it will acquire Chronosphere for $3.35 billion. The cloud observability platform will be purchased through a mix of cash and new equity issued to replace existing compensation awards.
Investors balked at the valuation. Palo Alto is paying nearly 21 times Chronosphere’s annual recurring revenue, which stood above $160 million at the end of September 2025.
The timing also drew scrutiny. Announcing another large acquisition before closing the $25 billion CyberArk deal likely contributed to the stock’s decline, according to DA Davidson analyst Rudy Kessinger.
CEO Nikesh Arora addressed the strategic reasoning during the earnings call. He pointed to the accelerating AI infrastructure buildout as justification for the purchase.
Palo Alto plans to merge Chronosphere with its Cortex AgentiX platform. The integration will allow AI agents to work with Chronosphere’s monitoring data to spot performance issues and autonomously trace their origins.
Raised Guidance Reflects Business Strength
The company lifted its full-year outlook after the solid quarterly performance. Fiscal 2026 revenue expectations now range from $10.50 billion to $10.54 billion, up from the prior $10.48 billion to $10.53 billion guidance.
Adjusted earnings per share forecasts also improved to $3.80-$3.90 from $3.75-$3.85 previously. For the current quarter, Palo Alto expects revenue between $2.57 billion and $2.59 billion, aligning with the $2.58 billion consensus.
Net income totaled $334 million, or 47 cents per share, in the first quarter. That marked a decrease from $351 million, or 49 cents per share, in the year-ago period.
Capital spending came in higher than anticipated at $84 million versus the $58.1 million forecast. Remaining purchase obligations, which track future committed business, grew to $15.5 billion and beat the $15.43 billion estimate.
The company’s acquisition strategy continues at full throttle under Arora’s leadership. Palo Alto announced the CyberArk Software purchase for approximately $25 billion back in July.
CyberArk shareholders gave their approval last week. Both the Chronosphere and CyberArk transactions are expected to finalize in the second half of fiscal 2026.
Cybersecurity spending continues to hold up well as organizations contend with evolving threats. Nation-state attacks and advanced ransomware campaigns are driving consistent demand for protection solutions.
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