Palo Alto’s biggest bet yet pressures forecast, sends shares tumbling
CyberArk integration and dilution dent earnings expectations.
Just before cyber giant Palo Alto Networks arrives for trading on the Tel Aviv Stock Exchange, it lowered expectations.
With the publication of its financial results for the second fiscal quarter of 2026, the company, founded by Israeli entrepreneur Nir Zuk, reduced its full-year forecast for both revenue and earnings per share. The revision sent the stock down almost 7% on Wall Street on Wednesday.
Despite the decline, Palo Alto remains a $123 billion company, with annual revenue of about $11 billion.
Investors have traditionally supported Palo Alto’s acquisition-driven strategy. However, for the first time in its history, the company has completed acquisitions on a dramatically larger scale, transactions that materially affect its financial structure.
Until now, Palo Alto typically acquired startups for several hundred million dollars, companies with established products but relatively small teams, allowing revenue growth without significantly increasing operating expenses.
That model changed with the $25 billion acquisition of Israeli cybersecurity company CyberArk, completed last week, and the $3 billion acquisition of U.S.-based Chronosphere earlier last year.
As Palo Alto executives emphasized during the earnings call, the company, which previously employed 16,000 people, is adding approximately 4,000 employees, the vast majority from CyberArk, increasing its workforce by about 25%. For the first time, Palo Alto must integrate a large company with parallel systems, its own culture, and a distinct organizational DNA.
The impact is already visible.
Part of the weaker revenue outlook stems from differences between Palo Alto’s and CyberArk’s methods of calculating annual recurring revenue (ARR). The discrepancy reduced the expected revenue contribution from CyberArk by 2%-3% for the coming year.
The acquisition also affects earnings per share, as most of the transaction was financed through stock. Palo Alto issued 112 million new shares to CyberArk shareholders, creating dilution that weighs on EPS.
The company forecast annual earnings of $3.65-$3.70 per share, below market expectations of $3.87. Its revenue forecast of $11.3 billion also fell short of analysts’ expectations, which had incorporated CyberArk’s latest reported revenue run rate.
Despite the two unusually large acquisitions, Palo Alto has not paused its traditional M&A strategy. On Tuesday, it announced the acquisition of Israeli cybersecurity startup Koi for an estimated $400 million.
The deal follows Palo Alto’s typical playbook and is intended to strengthen its endpoint protection capabilities in the age of AI agents. CEO Nikesh Arora noted that Palo Alto had been a Koi customer since mid-2025 and was impressed with the product. During his visit to Israel in December 2025, he met with the founders, and the deal was finalized shortly thereafter.
Since becoming CEO in 2018, Arora has led more than 20 acquisitions, transforming Palo Alto into the largest cybersecurity company by market value.
Despite lowering its annual outlook, Palo Alto reported strong quarterly performance.
Revenue reached $2.59 billion, roughly equivalent to Check Point’s annual revenue, representing 15% growth compared to the same quarter last year. Net income was $1.03 per share, well above analyst expectations of $0.94.
In remaining performance obligations (RPO), a key Wall Street metric reflecting contracted future revenue, the company reported $16 billion, exceeding expectations of $15.8 billion.
Workforce Reductions at CyberArk
During the analyst call, Arora addressed expected workforce reductions at CyberArk, which are estimated at approximately 700 employees globally, including about 100 in Israel. CyberArk employs roughly 1,100 people in Israel, meaning the local reduction represents about 10%.
“We began working on the integration seven months ago,” Arora said. “I've visited their Boston facility, spent days there with them. Lee [Klarich, Executive VP, Chief Product Officer, CTO & Director] and I were in Israel with the team and spent time with them. So CyberArk just didn't come upon us this week. It has been in the works for the last many 6 or 7 months. As you might have read, we had worked with the management team to fully understand what role every employee at CyberArk was going to have.
“So we were able to, on the date of close, inform every employee with their role in the future joint organization was going to be, what their plans are. Give OKRs, give targets to every one of them. So they all have that within the first 48 hours. So it's not like we've been waiting. There are some system transitions that we need to do in the case of CyberArk, which the teams are working hard, fast and furious on. We have had the opportunity to plan where they need to be. So we have our eye on the ball. That's our job, right, from a CyberArk perspective.”
The layoffs will not affect development teams. Most eliminated roles are in infrastructure and management. Some employees will depart immediately, while others will remain for up to a year to support integration.
Marketing and sales teams will continue operating separately for six to nine months. Palo Alto believes it can significantly improve customer support performance.
Overall, the company aims to bring CyberArk’s operating margin to 30% within 18 to 24 months.
