Palo Alto (PANW.US) plunged after-hours! Q2 earnings exceeded expectations but Q3 and full-year profit guidance is disappointing.

Palo Alto Networks (PANW.US) reported better-than-expected performance in the second quarter of fiscal 2026, but due to lower-than-expected profit guidance for the third quarter and full year, the cybersecurity company's stock dropped over 8% in after-hours trading on Tuesday. The financial report shows that Palo Alto Networks' Q2 revenue increased by 15% year-over-year to $2.59 billion, surpassing analysts' consensus estimate of $2.58 billion. Product sales were $514 million, up 22% from the same period last year, while subscription and support revenue were $2.08 billion, up 13% from the same period last year. Non-GAAP net profit was $732 million, up 29% from the same period last year; adjusted earnings per share were $1.03, beating analysts' consensus estimate of $0.94, compared to $0.81 in the same period last year. Q2 Next-Generation Security Annual Recurring Revenue (ARR) increased by 33% year-over-year to $6.3 billion. Remaining performance obligations increased by 23% year-over-year to $16 billion. Looking ahead, Palo Alto Networks expects revenue for the third quarter of fiscal 2026 to be between $2.94 billion and $2.95 billion, surpassing analysts' consensus estimate of $2.6 billion; adjusted earnings per share for the third quarter are expected to be between $0.78 and $0.80, lower than analysts' consensus estimate of $0.92. For fiscal 2026, the company expects full-year revenue to be between $11.28 billion and $11.31 billion, surpassing analysts' consensus estimate of $10.5 billion; full-year adjusted earnings per share are expected to be between $3.65 and $3.70, lower than the previous forecast of $3.80 to $3.90, and also lower than analysts' consensus estimate of $3.87. Palo Alto Networks CEO Nikesh Arora said in a statement on Tuesday, "We continue to maintain strong momentum in platformization, a trend accelerated by the push for AI - customers are eager to modernize and standardize their cybersecurity stacks to align with our solutions." He also said, "We are also seeing steady adoption of AI security, which we expect to be a long-term trend." The company is positioning itself as an integrated platform, aiming to replace existing point-to-point solutions by packaging cloud security, endpoint protection, and security operations as a single vendor relationship. This strategy targets large enterprises facing increasingly complex attacks and stricter scrutiny of security budgets. Palo Alto Networks also announced on Tuesday the acquisition of Israeli cybersecurity company Koi, stating that this will provide better visibility and help identify threats against AI software. The terms of the deal were not disclosed.