Palo Alto Networks posts strong Q3 FY2025 revenue but faces market jitters on guidance metrics

Palo Alto Networks, Inc. (NASDAQ: PANW), a global leader in AI-powered cybersecurity, reported a 15 percent year-over-year revenue growth in the third quarter of fiscal 2025, reaching $2.3 billion. Despite beating analyst expectations on both earnings and top-line figures, the stock declined by nearly 7 percent in the immediate aftermath of the announcement, reflecting investor concerns over certain forward-looking indicators.

The quarter ended April 30, 2025, marked a strategic milestone for Palo Alto Networks as its Next-Generation Security Annual Recurring Revenue (ARR) surpassed $5.1 billion, up 34 percent from the prior year. This was attributed to expanding enterprise demand for Prisma, Cortex, and VM-Series platforms, underpinned by AI-based threat intelligence and zero-trust architecture adoption.

Why Did Palo Alto Networks’ Revenue Climb in Q3 FY2025?

Total revenue rose to $2.289 billion in Q3 FY2025, compared to $1.985 billion in the year-ago period. This growth was largely driven by robust performance in the subscription and support segments, which contributed $1.836 billion, reflecting a 15 percent increase year-over-year. Product revenues also advanced to $452.7 million, up from $391 million in the same period last year.

The company’s ability to scale its cloud security offerings continues to pay off. Next-Generation Security ARR, which now includes QRadar SaaS contracts in addition to the core Prisma and Cortex portfolios, constitutes a growing share of total revenues. This shift underscores Palo Alto’s ongoing transformation from a legacy firewall vendor to a full-stack cybersecurity platform capable of delivering comprehensive, AI-powered solutions.

What Drove Earnings and Margins?

On a GAAP basis, net income was $262.1 million or $0.37 per diluted share, down slightly from $278.8 million or $0.39 in the previous year. However, the company’s non-GAAP net income surged to $560.9 million, translating to $0.80 per diluted share, an increase from $0.66 year-over-year. This exceeded Wall Street estimates and highlighted improved operational efficiency.

Non-GAAP operating income came in at $627.1 million, yielding an operating margin of 27.4 percent, up from 25.6 percent in the same quarter last year. These gains were achieved despite continued investment in R&D and go-to-market expansion, suggesting improved scale efficiencies and margin resilience in high-growth product areas.

Why Did PANW Stock Decline Despite the Earnings Beat?

Despite surpassing expectations, Palo Alto Networks’ stock declined by 6.8 percent to close at $181.17 on May 21, 2025. The market reaction was triggered primarily by a slight miss in remaining performance obligations (RPO), which came in at $13.5 billion compared to analyst estimates of $13.54 billion. Given the weight placed on RPO as a leading indicator of future revenue, the miss raised short-term concerns about sales velocity.

However, as of May 23, 2025, the stock rebounded moderately to $186.14. This partial recovery indicates that long-term investors may be interpreting the selloff as an overreaction, especially in light of continued ARR strength and positive guidance across other metrics.

How Are Analysts and Institutions Reacting?

Analyst sentiment remains overwhelmingly positive. According to FactSet data, out of 58 analysts covering the stock, 42 maintain a “Buy” rating, 14 recommend “Hold,” and only 2 advise “Sell.” Consensus price targets are anchored between $205 and $225, reflecting confidence in Palo Alto’s strategic positioning and continued monetization of its AI-based security platforms.

Brokerage firms such as Wedbush and Truist Securities have reiterated their outperform ratings, citing Palo Alto’s deep portfolio integration and leadership in hybrid cloud security as critical drivers for future growth. They also pointed to the platform’s appeal among Fortune 500 clients, especially those seeking end-to-end security with simplified vendor management.

Institutional investors continue to support the stock. Current institutional ownership stands at over 79.8 percent. Recent 13F filings reveal that Two Sigma Advisers LP initiated a new position with the purchase of 406,490 shares, valued at nearly $74 million. Large institutional holders like Vanguard Group Inc. and Geode Capital Management LLC have also increased their stakes, indicating broad confidence in Palo Alto’s long-term trajectory.

How Is the Platformization Strategy Impacting Future Outlook?

CEO Nikesh Arora highlighted that surpassing $5 billion in Next-Gen Security ARR validates the company’s platformization strategy. Rather than offering siloed point solutions, Palo Alto aims to unify its cybersecurity ecosystem across network, cloud, and endpoint vectors through a single control layer. This consolidation is increasingly attractive to large enterprises seeking efficiency, reduced complexity, and centralized threat visibility.

The company’s Unit 42 threat intelligence division continues to differentiate Palo Alto by enhancing the predictive and analytical capabilities of its platform. This unique value proposition has helped win critical deployments across industries such as healthcare, finance, and national infrastructure. As regulatory requirements around digital risk grow tighter, such capabilities position Palo Alto to remain at the forefront of compliance-oriented security solutions.

What Guidance Did the Company Offer for Q4 and FY2025?

For the fourth quarter of fiscal 2025, Palo Alto Networks projects revenue between $2.49 billion and $2.51 billion, representing a 14 to 15 percent increase year-over-year. Next-Generation Security ARR is expected to climb to between $5.52 billion and $5.57 billion, implying year-over-year growth of approximately 31 to 32 percent. Non-GAAP earnings per share are forecast to range between $0.87 and $0.89.

For the full fiscal year, total revenue is expected to range from $9.17 billion to $9.19 billion, up 14 percent from the prior year. The company projects a non-GAAP operating margin between 28.2 and 28.5 percent and anticipates adjusted free cash flow margins of 37.5 to 38.0 percent. These outlook figures reinforce confidence in Palo Alto’s operational leverage and continued demand for its AI-integrated offerings.

Is PANW a Buy, Sell, or Hold After Q3 Earnings?

For long-term investors, Palo Alto Networks continues to offer a compelling “Buy” thesis. Its strong ARR growth, improving margins, and integrated platform make it a rare large-cap cybersecurity name that combines profitability with innovation. While short-term traders may find volatility around earnings announcements and RPO metrics, the broader trajectory remains firmly upward.

Technically, the stock has formed support near the $180 level, coinciding with its 50-day moving average. Resistance is expected around $205, which may act as a psychological barrier before another breakout attempt. Based on recent chart patterns, analysts see upside potential extending to $240 in a bullish scenario.

Overall, Palo Alto Networks stands as a defensive tech play in a volatile macroeconomic environment. Its platform strategy, AI infusion, and continued enterprise wins underpin its ability to capture disproportionate share in the fast-growing cybersecurity market.