Palo Alto (PANW) Stock: Earnings Beat Overshadowed by $3.35 Billion Chronosphere Acquisition

TLDR

• Palo Alto Networks reported Q1 earnings of 93 cents per share, beating estimates of 89 cents, with revenue of $2.47 billion versus $2.46 billion expected.
• The company announced a $3.35 billion acquisition of cloud observability platform Chronosphere, paying approximately 21 times its annual recurring revenue.
• Stock dropped about 3% after hours despite beating earnings expectations, likely due to concerns about the Chronosphere deal price and timing before CyberArk closes.
• Palo Alto raised full-year revenue guidance to $10.50-$10.54 billion and adjusted EPS guidance to $3.80-$3.90 per share.
• The Chronosphere acquisition and pending $25 billion CyberArk deal are both expected to close in the second half of fiscal 2026.

Palo Alto Networks delivered a solid fiscal first-quarter performance on Wednesday. The cybersecurity company posted earnings of 93 cents per share on an adjusted basis, topping Wall Street’s expectation of 89 cents.

Revenue came in at $2.47 billion, slightly ahead of the $2.46 billion analysts anticipated. This represented a 16% increase from the $2.1 billion the company reported in the same period last year.

Despite the positive earnings surprise, shares fell about 3% in after-hours trading. The market reaction appeared tied to the company’s announcement of another major acquisition.

Palo Alto Networks, Inc., PANW

Chronosphere Deal Details

Palo Alto Networks revealed plans to acquire Chronosphere, a cloud observability platform, for $3.35 billion. The company will pay the purchase price through a combination of cash and new equity to replace existing awards.

The acquisition comes with a hefty price tag. Palo Alto is paying nearly 21 times Chronosphere’s annual recurring revenue, which exceeded $160 million as of September 2025.

CEO Nikesh Arora explained the strategic rationale behind the purchase on the earnings call. He pointed to the rapid pace of AI development as a driving factor.

This integration will allow AI agents to work with Chronosphere’s data. The goal is to detect performance issues and investigate their root causes automatically.

Guidance and Financial Metrics

Palo Alto raised its full-year outlook following the strong quarterly results. The company now expects fiscal 2026 revenue between $10.50 billion and $10.54 billion, up from its previous range of $10.48 billion to $10.53 billion.

Adjusted earnings per share guidance also increased to $3.80-$3.90 from the prior forecast of $3.75-$3.85. For the second quarter, Palo Alto guided for revenue between $2.57 billion and $2.59 billion.

The midpoint of that range aligns with analyst expectations of $2.58 billion. Net income for the first quarter totaled $334 million, or 47 cents per share, down from $351 million, or 49 cents per share, in the year-ago period.

Capital expenditures during the quarter came in higher than expected at $84 million versus the $58.1 million StreetAccount anticipated. Remaining purchase obligations, which track backlog, grew to $15.5 billion and exceeded the $15.43 billion estimate.

Analyst Rudy Kessinger from DA Davidson suggested the stock decline reflected concerns about Chronosphere’s valuation. The timing of announcing another acquisition before completing the CyberArk deal may also be weighing on investor sentiment.

Palo Alto announced in July that it would acquire Israeli identity security firm CyberArk Software for approximately $25 billion. CyberArk shareholders approved that transaction last week.

Both the Chronosphere and CyberArk acquisitions are expected to close in the second half of fiscal 2026. The company continues to benefit from strong demand for cybersecurity solutions as threats from nation-state actors and ransomware attacks become more sophisticated.

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