Palo Alto Networks 2025 Q3 Earnings Mixed Results as EPS Declines 9.3%

Palo Alto Networks (PANW), ranking 110th by market capitalization, reported its fiscal 2025 Q3 earnings on May 21st, 2025. Palo Alto Networks reported earnings that were slightly better than analyst expectations, with third-quarter revenue of $2.29 billion, surpassing the consensus estimate of $2.28 billion. However, the company's guidance adjustment raised expectations for full-year revenue and adjusted earnings per share. This reflects the company's confidence in its financial performance moving forward.

Revenue
The total revenue of Palo Alto Networks increased by 15.3% to $2.29 billion in 2025 Q3, up from $1.98 billion in 2024 Q3. Product revenue reached $452.70 million, while subscription and support services contributed $1.84 billion to the total revenue figure.

Earnings/Net Income
Palo Alto Networks's EPS declined 9.3% to $0.39 in 2025 Q3 from $0.43 in 2024 Q3. Meanwhile, the company's net income declined to $262.10 million in 2025 Q3, down 6.0% from $278.80 million reported in 2024 Q3. This indicates a challenging quarter for earnings.

Price Action
The stock price of Palo Alto Networks has edged down 1.89% during the latest trading day, has dropped 5.05% during the most recent full trading week, and has jumped 13.25% month-to-date.

Post-Earnings Price Action Review
The strategy of purchasing Palo Alto Networks shares on a revenue beat and holding for 30 days has historically yielded a 165.81% return, significantly outperforming the benchmark. However, this approach has also experienced a substantial maximum drawdown of -35.30%, indicating the presence of moderate risk. The Sharpe ratio, which stands at 0.69, suggests that the returns are somewhat balanced with the associated risk. Despite the potential for high returns, investors should be aware of the volatility and risk involved in this strategy, as evidenced by the significant drawdowns. Overall, while the historical performance is strong, it highlights the necessity for careful risk management and consideration of market conditions.

CEO Commentary
Nikesh Arora, Chairman and Chief Executive Officer, expressed delight with Q3 results, highlighting a 34% year-over-year growth in next-generation security ARR, surpassing $5 billion. He noted that the company's platformization strategy resonates with organizations aiming to simplify security architectures in the AI-driven era, contributing to larger deals. Arora emphasized the urgency of AI adoption among customers, stating, “The urgency to adopt AI is omnipresent in all of our customers,” which drives their technology transformations. He remains optimistic about achieving the $15 billion ARR target by FY '30, citing sustained momentum in AI-powered offerings as key growth drivers.

Guidance
For fiscal year 2025, Palo Alto Networks expects NGS ARR to be between $5.52 billion and $5.57 billion, representing a 31% to 32% increase. The company projects remaining performance obligations of $15.2 billion to $15.3 billion, an increase of 19% to 20%. Revenue is anticipated to range from $9.17 billion to $9.19 billion, reflecting a 14% growth. Additionally, diluted non-GAAP EPS is expected to be between $3.26 and $3.28 per share, marking a 15% increase, with an adjusted free cash flow margin forecasted between 37.5% and 38%.

Additional News
In recent developments, Palo Alto Networks has been focusing on enhancing its AI capabilities through strategic acquisitions. The company recently acquired Protect.AI to bolster its AI-driven cybersecurity offerings, demonstrating its commitment to staying ahead in the rapidly evolving tech landscape. Additionally, Palo Alto Networks announced a strategic partnership with IBM to accelerate the transition of QRadar users from on-premises to cloud-based solutions, aiming to capitalize on the growing demand for cloud security. These initiatives align with the company's strategy to solidify its position as a leader in AI-powered cybersecurity solutions.