The Zhitong Finance App learned that cybersecurity company Palo Alto Networks (PANW.US) will announce the results for the first quarter of the 2027 fiscal year on November 18, EST. In a newly released research report, Deutsche Bank predicts that the company's first quarter results will be steady, and all key indicators will exceed market expectations, although the extent of exceeding expectations may be narrower than in the previous quarter. Deutsche Bank reiterated its “buy” rating for Palo Alto Networks, with a target price of $430, which is about 28.6% higher than the stock's closing price of $334.47 on Wednesday.
Deutsche Bank said its survey showed that Prisma Cloud performed strongly, while XSIAM, Prisma Sase, and CyberArk's business progress was more steady. This shows that the growth momentum of the firewall business and Prisma AIRS continues, and is in line with the very positive comments made by management during the bank's survey.
Deutsche Bank's research found that Palo Alto Networks' management also showed confidence in the business development pipeline. Since April, AI models with stronger cybersecurity capabilities have been released one after another. The company is optimistic about the subsequent expansion of the business pipeline and the ability to turn these positive developments into actual revenue. However, management notes that the sales cycle is 9 to 12 months, which means related opportunities may not be a significant driver affecting performance in the first half of FY2027. As a result, Deutsche Bank expects that with only one quarter of this fiscal year past, management will maintain a prudent performance guidance strategy, reaffirm the outlook for NGS ARR and remaining performance obligations (RPO) for the 2027 fiscal year, and reflect the portion of revenue that exceeded expectations for the first quarter in the updated performance guidelines.
Deutsche Bank believes that in the AI era, the largest cybersecurity platforms are most capable of gaining market share that exceeds the industry average, and this should be a smooth wind factor for the entire industry. The survey results also showed that Palo Alto Networks has bright prospects for future development. What best illustrates this is that in the emerging AI security market, 42% of respondents ranked the company as one of the top three companies with the most competitive advantage, putting the company at the top of all the companies surveyed. As a result, Deutsche Bank will keep a close eye on the further development of Prisma AIRS, a business with an ARR of approximately $120 million at the end of the fourth quarter of fiscal year 2026. In field research during this quarter, Deutsche Bank also found that market interest in integrated terminal detection and response (EDR) /extended detection and response (XDR) and terminal AI security products is clearly heating up, and Palo Alto Networks is often listed as the preferred supplier. Therefore, Deutsche Bank is particularly concerned about the business progress of Koi and Cortex XDR.
From a broader perspective, Deutsche Bank reiterated its previous view that in the AI era, the largest cybersecurity platforms are best able to gain excess market share, and Palo Alto Networks is one of the highest quality companies. Furthermore, as one of the highest quality identity security assets in the industry, and the management has a good record of mergers and acquisitions, Deutsche Bank believes that CyberArk (CYBR) will become a meaningful endogenous growth accelerator for Palo Alto Networks, helping the company play a leading role in the ongoing AI paradigm shift. More broadly, Deutsche Bank remains convinced of management's ability to continue to expand its market share in its huge potential market.
Performance expectations
1) Revenue:
The median revenue guideline for the first quarter of fiscal year 2027 was US$3.305 billion, up 33.5% year over year, which means that with a similar base, the year-on-year revenue growth rate slowed 90 basis points from the previous quarter. After significantly exceeding expectations for two consecutive quarters in the second half of fiscal year 2026 (exceeding expectations by 2.0% and 1.8% in the third and fourth quarters, respectively), Deutsche Bank expects the company to once again deliver steady results this quarter, but the margin of exceeding expectations will be more moderate, possibly close to 1% — 1.5%.
Following the fourth quarter's performance being mainly driven by the product business, Deutsche Bank expects the contribution of various business segments to exceeding expectations in the first quarter of fiscal year 2027 will be more balanced. The higher-than-expected performance of the service business this quarter is likely to be driven by Chronosphere (which is expected to contribute more than $100 million to the next generation of ARR in the first quarter).
As for the product business, in Deutsche Bank's research, management showed a particularly positive attitude towards the recent growth in the hardware firewall business. A number of favorable factors are gradually converging, including infrastructure modernization, price increases, and quantum computing. However, Deutsche Bank also took into account recent comments from peers in the network equipment and cybersecurity industry: the delivery cycle for some components (such as memory) is being extended; in addition, after the acquisition of CYBR, software currently accounts for about 50% of the product business. As a result, Deutsche Bank expects the product business to still exceed expectations this quarter, but the extent of exceeding expectations may be lower than the level of the fourth quarter of FY2026 (9.4%, or $63 million). Looking ahead, Deutsche Bank expects management to include the portion of this quarter's performance exceeding expectations in the updated total revenue guidance for the full year of FY2027.
2) Next Generation Safety ARR (NGS ARR):
The NGS ARR guidance for the end of the first quarter of fiscal year 2027 was US$9.55 billion, an increase of 63% year over year, which means that the next generation ARR (NNARR) will increase by US$450 million.
Palo Alto Networks has recently completed a number of acquisitions, including CYBR, Chronosphere, Koi, Portkey, Embrace, and Console. These acquisitions contributed significantly to the 67% year-on-year increase in NNARR as reflected in this quarter's guidance (for example, Chronosphere alone is expected to contribute approximately $100 million in NNARR to F1Q with a major AI customer). If new business brought about by mergers and acquisitions is excluded, Deutsche Bank suspects that the company's guidelines actually imply that organic NNARR's year-on-year growth rate will grow negative to flat.
Considering the recent strong performance of Prisma AIRS (ARR at the end of the F4Q26 period) and the significant increase in market share in the SASE business (the total contract value TCV obtained by FY26 through competitive replacement is about US$450 million), and the overall strength of the company's multi-platform business, Deutsche Bank believes that this guidance may be conservative. Combined with the strong results obtained in the survey, Deutsche Bank expects the company to easily exceed expectations this quarter, but the margin of exceeding expectations may be lower than in the second half of fiscal year 2026 (the third quarter and the fourth quarter exceeded expectations by 2.3% and 2.0%, respectively), and is expected to be about 1%. Looking ahead, given management's consistent prudent performance guidance strategy, Deutsche Bank would not be surprised if it renews the 2027 NGS ARR outlook.
3) Remaining Performance Obligations (RPO):
The median RPO guideline was US$20.85 billion, an increase of 35% over the previous year. Compared with F4Q, when the same ratio is similar, this guideline means that the RPO growth rate is slightly faster year over year. Combined with the median total revenue guide, this outlook means that order volume for the first quarter of fiscal year 2027 was approximately US$3 billion, an increase of 36% over the previous year. This means that after strong performance at the end of fiscal year 2026, the year-on-year order growth rate will be more than 7 percentage points faster than the previous quarter, but the year-on-year comparison base for this quarter is significantly lower. Therefore, Deutsche Bank expects the RPO to be basically the same as the median guideline, but there is a risk that the performance will exceed expectations upward.
Looking ahead to the second quarter, the market currently expects an RPO of 21.36 billion US dollars, an increase of 33% over the previous year, which means that with a year-on-year comparison base of about 1 percentage point easier and a net increase of about 500 million US dollars month-on-month, the RPO growth rate will slow by about 1 percentage point. Considering management's prudent performance guidance strategy, and assuming that the first quarter RPO performance is in line with expectations, Deutsche Bank expects the second quarter RPO guidelines to be basically in line with market expectations, and that the full-year guidance will also be reaffirmed.
4) Profitability:
The market currently expects non-GAAP operating profit of US$970 million for the first quarter, with a corresponding non-GAAP operating margin of 29.4%. This forecast assumes that incremental profit margins will fall to approximately 5%, compared to 28% and 26% for the fourth and third quarters of FY2026, respectively.
During the CYBR integration process, management continued to achieve significant cost synergies, while also implementing AI-related initiatives throughout the business system. Together, these factors should be sufficient to offset the additional input cost pressure caused by rising component costs (such as rising memory prices). As a result, Deutsche Bank suspects that incremental profit margins will remain relatively stable, remaining in the middle to high 20% range, which means that the NGOI may exceed expectations by about 30 million US dollars. As for the full-year results outlook, Deutsche Bank would not be surprised if management updates the 2027 non-GAAP operating margin guidelines based on this quarter's performance exceeding expectations.