Palo Alto Networks sold a lot more security software and kept far less of the revenue as operating profit.
Over the twelve months ended July 31, revenue rose 24.5% to $11.5 billion. Operating income fell 44.1% to $695 million, net income dropped 72.9% to $307 million, and diluted earnings per share fell to $0.40 from $1.60. The business got bigger; the income statement got noticeably less generous.
The cash statement is the complication. Operating cash flow rose 22.5% to $4.6 billion, even as gross margin slipped to 70.4% from 73.4%. That is not a clean profit story or a clean cash story. It is a growth story carrying a much larger bill.
The company points first to hardware demand, acquisitions, and supply-chain pressure. Product costs increased 38% to $568 million, with CyberArk adding amortization and the acquired business adding costs around the edges.
"Cost of product revenue increased for fiscal 2026 compared to fiscal 2025 primarily due to increased demand for our hardware products, higher amortization of intangible assets as a result of our CyberArk acquisition, and higher costs primarily driven by supply chain challenges, partially offset by a decrease in inventory excess and obsolete charges."
Palo Alto Networks, 2026 10-K, filed September 10, 2026
The filing links higher hardware demand to higher product costs, while product margin declined. The company also spent heavily to absorb the acquisitions and expand the organization: research and development increased 28.6% to $2.6 billion, while sales and marketing rose 27% to $3.9 billion.
General and administrative expense more than doubled to $899 million. Management attributes that increase to acquisition-related equity-award vesting, severance tied to CyberArk, and headcount growth.
"General and administrative expense increased for fiscal 2026 compared to fiscal 2025 primarily due to increased personnel costs, which grew $253 million for fiscal 2026 compared to fiscal 2025, primarily due to accelerated vesting of certain equity awards in connection with our acquisitions in fiscal year 2026, employee severance charges in connection with our CyberArk acquisition, and headcount growth, including from our acquisitions."
Palo Alto Networks, 2026 10-K, filed September 10, 2026
That explanation matters because some of the pressure is tied to acquisition amortization, severance, and accelerated equity vesting rather than hardware costs. The broader personnel build is reflected in operating expenses. The filing also shows diluted shares rising 7.8% to 764 million, putting the year's changes in the share count as well as the expense lines.
Capital demand rose too. Capital spending increased 78.1% to $440 million, and accounts receivable grew 22.4% to $3.6 billion. Cash still increased to $2.5 billion, but the company used more of its operating scale to fund expansion than it did a year earlier.
The market context makes the margin question harder to ignore. Palo Alto Networks closed at $335.08 on September 9, and its trailing P/E was 209.6x, with a cash-flow yield of 1.6%. Those figures do not explain the filing, but they put more numerical weight on what earnings look like after acquisition costs, integration, and compensation settle into the business.
Palo Alto's next quarterly report can add one useful piece to that picture: whether operating margin begins to recover while acquisition-related personnel costs and amortization remain visible. For now, the trade-off is simple enough: more sales, more cash, and a much smaller profit.