Palo Alto Networks said on Tuesday it has trimmed its fiscal 2026 adjusted earnings-per-share forecast as acquisition-related expenses rose, a move that coincided with a roughly 7% drop in the company’s shares in extended trading. Management cited escalating costs tied to recent purchases as it builds out capabilities intended to address AI-driven cyber threats.
The company announced the acquisition of Israeli cybersecurity startup Koi on Tuesday. That deal follows the July purchase of CyberArk Software, its largest acquisition to date, and the November buyout of Chronosphere. Palo Alto said these transactions are part of an effort to enhance its AI-focused security offerings and to broaden the total addressable market.
In its quarterly update, Palo Alto disclosed that acquisition-related costs rose to $24 million in the second quarter, up from $10 million a year earlier. The company also acknowledged that integrating larger targets, including CyberArk, requires more extensive reengineering and restructuring than smaller deals.
On the earnings front, Palo Alto reported second-quarter revenue of $2.59 billion, a 15% increase from the prior year and in line with consensus estimates. Adjusted earnings per share for the three months ended January 31 came in at $1.03, beating estimates of $0.94. Despite the beat, forward-profit guidance weakened.
For fiscal 2026, Palo Alto now expects adjusted EPS of $3.65 to $3.70, down from its previous range of $3.80 to $3.90. At the same time, the company raised its full-year revenue guidance to $11.28 billion to $11.31 billion, up from an earlier expectation of $10.50 billion to $10.54 billion. Management said both the CyberArk and Chronosphere acquisitions are included in its quarterly and annual forecasts.
Looking to the third quarter, Palo Alto forecast revenue of about $2.94 billion to $2.95 billion, above analysts’ average estimate of $2.60 billion as compiled by LSEG. The company’s quarterly adjusted EPS guidance of $0.78 to $0.80, however, fell short of the $0.92 consensus.
Palo Alto also pointed to elevated client spending on modernizing security operations amid a wave of high-profile cyberattacks affecting major companies, including F5 and UnitedHealth Group. The company framed its acquisitions as strategic moves to strengthen its position against AI-enabled threats while noting the near-term cost and complexity implications of integrating acquired businesses.
Separate from core financial commentary, the company is evaluated by external stock-selection models that track many firms across multiple metrics. Those models have previously highlighted other technology names with significant past returns.
Key points:
- Palo Alto cut its fiscal 2026 adjusted EPS guidance to $3.65 - $3.70 per share, down from $3.80 - $3.90.
- Acquisition-related costs increased to $24 million in Q2 from $10 million a year earlier as the company integrates recent purchases including CyberArk, Chronosphere and the newly announced Koi.
- Revenue guidance was raised to $11.28 billion - $11.31 billion for the year, and Q3 revenue is forecast at about $2.94 billion - $2.95 billion, above the analyst average cited.
Risks and uncertainties:
- Higher integration, reengineering and restructuring costs from large acquisitions could pressure near-term profitability - affecting the technology and cybersecurity sectors.
- Quarterly adjusted EPS guidance below analyst estimates introduces execution risk relative to investor expectations - with potential market valuation impacts in the software sector.
- Continued need for customers to modernize security operations amid ongoing cyberattacks creates demand uncertainty tied to enterprise IT spending patterns.