QS Research · Michael Burry's Scion Capital analyst template · 2006
Palo Alto Networks Inc (PANW)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction medium · base case -28% · downside -50% · upside +39%
FY2026 (ended 2026-07-31) revenue is $11.48B, operating income $695.0M, net income $307.0M, operating cash flow $4.55B and FCF $4.11B; at $316.86 the market pays 22.31x EV/Sales, 165.2x EV/EBITDA, 844.3x P/E and a 1.6% FCF yield (N24-N28). The business is real and recurring, with subscription/support at 80% of revenue and NGS ARR at $9.1B, up 63%, but GAAP operating income fell from $1.24B to $695.0M while D&A rose to $855.0M, and FY2027 NGS ARR growth is guided to only 22%-23% (S24, S26, S95). Using section 13's FY2026 revenue base, my base case is 16.0x EV/Sales: 16.0 x $11.48B = $183.68B EV, plus $3.07B cash = $186.75B equity, divided by 818M shares = about $228, or -28%; downside at FTNT's 11.01x is about $158 (-50%) and upside at NET's 31.14x is about $441 (+39%) (S1, N11, N20, N5). The long rule fails on the -50% downside and the short rule fails on the +39% upside, so this is a watch: growth is not missing from the price, and a deep-value margin of safety is absent.
Key numbers
- Share price: $316.86
- Market cap: $259.19B
- Latest financial period: FY Jul 2026 to Jul 31, 2026
- Revenue (FY Jul 2026): $11.48B
- EV / EBITDA (FY Jul 2026): 165.2x
- P/E (FY Jul 2026): 844.3x
- Price / book: 9.43x
The 15 boxes
- ✓ 1. Long-form business notes
PANW sells cybersecurity as a suite of tightly integrated platforms — Network & AI Security (NGFWs, Prisma Access/SASE, CDSS add-on subscriptions), Cortex (XSIAM, XDR, XSOAR, Xpanse, Cortex Cloud, Chronosphere), Idira (identity) — plus Unit 42 support, threat-intelligence and professional services. Revenue compounded from $4.26B in FY2021 to $11.48B in FY2026, but FY2026 GAAP operating income fell to $695.0M from $1.24B in FY2025 while D&A nearly tripled to $855.0M, so this year's earnings growth did not keep pace with revenue. Cash generation remains far ahead of GAAP earnings (FY2026 operating cash flow $4.55B, capex $440.0M). The portfolio has changed shape between the FY2021 and FY2026 reports: identity security (Idira), observability (Chronosphere) and an AI-security stack (Prisma AIRS, AI Access Security, Prisma Browser) did not exist in the oldest filing, and the five-area taxonomy of FY2021 has been repackaged into three platforms plus services.
- ✓ 2. Competitive advantage
PANW has scale and a high recurring revenue base, but the sources do not establish a durable competitive advantage. FY2026 revenue reached $11.48B and operating cash flow $4.55B, yet FY2026 operating income fell to $695.0M from $1.24B in FY2025 even as revenue rose, and subscription/support was 80% of revenue. The 10-K claims favorable features, integration and low TCO, but it also lists larger and broad competitors, pricing pressure, channel concentration, and vendor-consolidation/cloud-AI threats.
- ✓ 3. 10-Q takeaways
Q3 FY2026 (quarter ended 2026-04-30) revenue rose 31% YoY to $3.0B, with subscription and support 80.2% of revenue; nine-month FY2026 revenue was $8.1B, up 21%. Gross margin fell to 67.6% from 72.9%, and the quarter produced an operating loss of $(183)M, driven by acquisition-related amortization and $684M of share-based compensation, not by a one-off gain. Cash generation remained strong: nine-month FY2026 operating cash flow was $3,196M and free cash flow $2,859M; NGS ARR was $8.1B and RPO $18.4B at 2026-04-30. The CyberArk deal closed 2026-02-11 for $21.1B total consideration, adding scale and integration/competition risk.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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