Palo Alto Networks (PANW) Q4 2025: RPO Jumps 24% as Platformization Drives Record Large Deals

August 18, 2025 | By EarningsIQ Research

Palo Alto Networks capped its fiscal year with a breakout quarter, marked by a 24% surge in remaining performance obligation (RPO) and record platformization deals, as customers consolidate security vendors and embrace integrated solutions. The company’s shift to software and AI-driven offerings is accelerating, with large multi-product commitments and next-generation security annual recurring revenue (ARR) up sharply. Management’s conviction in sustainable margin expansion and a bold CyberArk acquisition signals a coming decade of security platform dominance, but integration and execution risks loom as the industry pivots to AI-first architectures.

Summary

  • Platformization Momentum: Large, multi-product deals are accelerating, deepening customer lock-in and raising ARR quality.
  • AI and Software Shift: Software firewalls, SASE, and AI-powered offerings are driving both product growth and share gains.
  • Margin Expansion Focus: Management targets higher free cash flow margins and leverages scale, but integration with CyberArk is a key watchpoint.

Performance Analysis

Palo Alto Networks delivered a standout Q4, with total revenue rising 16% and product revenue up 19%, propelled by a decisive shift toward software form factors and integrated platform deals. The software mix represented 56% of product revenue, a significant driver of growth, as the company capitalized on cloud migration and multi-cloud adoption. Services revenue also posted solid gains, with subscription revenue up 17% and support up 11%, reflecting broad customer engagement across both new and existing portfolios.

RPO growth of 24% to $15.8 billion marked the highest acceleration in nearly two years, a testament to robust large-deal activity and increased contract duration. Next-generation security ARR climbed 32% to $5.58 billion, with net new ARR up double digits and strong contributions from SASE, software firewalls, and the XIM platform. Notably, AI-related ARR more than doubled, underscoring the company’s first-mover advantage in securing emerging AI workloads.

  • Large Deal Velocity: Customers with over $5 million and $10 million in ARR grew ~50%, while $20 million-plus ARR customers rose nearly 80%—a structural shift in deal size and commitment.
  • Software and Cloud Share Gains: Software-powered network security ARR rose nearly 20%, with product revenue growth outpacing hardware peers.
  • Margin Expansion: Operating margin exceeded 30% for the first time, driven by scale and cost discipline across sales, R&D, and G&A.

The company’s platformization strategy is translating directly into elevated retention (120%+ for platform customers) and nearly zero churn, solidifying the recurring revenue base and supporting management’s bullish long-term outlook.

Executive Commentary

"We are proud to be the first dedicated cybersecurity company to surpass a $10 billion revenue run rate. While this milestone is significant, it is not the ultimate goal. Our focus has already shifted to leveraging the scale to define the next decade of cybersecurity."

Nikesh Arora, Chairman and Chief Executive Officer

"We are unique in our ability to deliver top-line growth with leading free cash flow margins at a level that is best in class among scaled enterprise software companies. As you will see shortly, we expect to once again be above the rule of 50 in fiscal year 26."

Deepak Galecha, Chief Financial Officer

Strategic Positioning

1. Platformization as a Growth Engine

Palo Alto’s platformization—consolidating multiple security functions into integrated platforms—has become the company’s defining differentiator. This approach drives larger deal sizes, deeper customer relationships, and superior retention. The company reported a record number of eight-figure deals, with customers increasingly adopting multiple platforms (network, cloud, SecOps) and validating the value of a unified security stack.

2. Software and AI-Driven Security

The ongoing pivot from hardware to software firewalls, SASE (Secure Access Service Edge, cloud-delivered security), and AI-powered offerings is reshaping Palo Alto’s business mix and competitive position. With 56% of product revenue from software and nearly 50% share in software firewalls, Palo Alto is capturing the cloud security transition. AI security, including the launch of Prisma AIRS, is opening new growth vectors as enterprise AI adoption explodes, creating fresh attack surfaces and urgent demand for integrated protection.

3. Margin Structure and Cash Flow Leverage

Management’s focus on scale and cost efficiency is translating into record operating margins and sustained high free cash flow. The company’s transition to annual billings and prudent deferred payment management enhances cash flow visibility. With guidance for 38–39% free cash flow margins in FY26 and a target of 40%+ post-CyberArk integration, Palo Alto is positioning itself as a rare Rule-of-50 performer (revenue growth plus free cash flow margin exceeding 50%) in enterprise software.

4. Identity Security Bet: CyberArk Acquisition

The proposed acquisition of CyberArk, a leader in privileged access management (PAM, securing high-value identities), marks a strategic pivot into identity security. Management cited the inflection point in identity as AI agents proliferate, with 90% of breaches involving credentials. The deal aims to combine Palo Alto’s platform reach with CyberArk’s deep expertise, targeting both PAM and the broader Identity and Access Management (IAM) market. The integration is expected to double the value of the joint businesses within five years, but will require careful execution to realize synergies.

Key Considerations

Palo Alto’s Q4 underscores a business at the intersection of scale, innovation, and industry consolidation, but also highlights the execution complexity of its ambitions. Investors should weigh the following:

Key Considerations:

  • Deal Quality and Retention: Platform customers exhibit 120%+ net retention and minimal churn, supporting durable long-term growth.
  • AI Security Opportunity: Prisma AIRS and AI-driven SOC (Security Operations Center) capabilities are in early innings, with pipeline strength but execution risk as customers ramp AI adoption.
  • Software Mix Shift: The move to software and cloud-native security is driving higher margins and faster deployment cycles, but also intensifies competitive pressure from hyperscalers and startups.
  • Integration Complexity: The CyberArk integration will test Palo Alto’s ability to deliver on platform synergies, especially as identity and security converge in the AI era.

Risks

Execution risk remains elevated as Palo Alto integrates CyberArk and expands its platform vision into identity, a domain with entrenched competitors and complex customer needs. The rapid evolution of AI-driven threats introduces both opportunity and uncertainty, as does the company’s dependence on continued large-deal momentum. Shifts in customer procurement, macro volatility, or delays in realizing platform synergies could pressure growth or margins.

Forward Outlook

For Q1 2026, Palo Alto guided to:

  • Revenue of $2.45 to $2.47 billion, up 15% year over year
  • Next-generation security ARR of $5.82 to $5.84 billion, up 29%
  • Non-GAAP EPS of $0.88 to $0.90

For full-year 2026, management raised guidance:

  • Revenue of $10.475 to $10.525 billion (up 14%)
  • Operating margin of 29.2% to 29.7%
  • Free cash flow margin of 38% to 39%

Management highlighted:

  • Strength in software-driven product revenue and large deal pipeline, particularly in SASE, software firewalls, and AI security.
  • Continued seasonality with Q4 weighting, and expectations for double-digit product revenue growth driven by software mix.

Takeaways

Palo Alto Networks is executing on a multi-year transition to platformized, software-centric security, with record large deals and superior retention validating the strategy. The company’s push into AI and identity security sets up a new phase of growth, but integration and competitive risks must be monitored as the market consolidates.

  • Next-Gen Growth Engine: SASE, software firewalls, and XIM are now the primary drivers, outpacing legacy hardware and positioning Palo Alto for cloud-first security leadership.
  • Margin and Cash Flow Upside: Operating leverage and disciplined cost management are translating into best-in-class free cash flow, with further upside post-CyberArk if integration is successful.
  • AI-Driven Inflection: The AI security wave is just beginning, and Palo Alto’s early investments give it a first-mover edge, but execution and competitive intensity will shape its next chapter.

Conclusion

Palo Alto Networks’ Q4 marks an inflection point, with platformization and software momentum driving record deal sizes and recurring revenue quality. The company’s expanding portfolio, AI-first innovation, and bold foray into identity security position it for sustained outperformance, provided it can execute on integration and maintain its innovation edge.

Industry Read-Through

Palo Alto’s results signal a broad shift in cybersecurity toward integrated platforms, software-first delivery, and AI-driven operations. The surge in large, multi-product deals and platformization validates the consolidation thesis, pressuring point solution vendors and raising the bar for scale and innovation. The rapid adoption of AI in security—both as a threat and a defense—will accelerate demand for unified solutions that can secure hybrid and cloud-native environments. As identity and security converge, vendors with platform breadth and integration capability will be best positioned, while hardware-centric and fragmented players risk losing relevance.

PANW Technology Cybersecurity Platformization AI Security Software Identity