Why are Palo Alto Networks’ Shares Dipping in Premarket Today?

Palo Alto Networks (NASDAQ: PANW) reported fiscal third-quarter 2025 earnings after the closing bell on Tuesday that exceeded analysts’ expectations on both revenue and earnings per share. However, despite the earnings beat, the stock slipped in premarket trading Wednesday as investors appeared concerned about gross margin pressure and potentially lackluster guidance.

Palo Alto Networks Reports Earnings After Bell, Fails to Impress the Market

Palo Alto Networks delivered solid fiscal third-quarter results that surpassed Wall Street’s expectations on key metrics, but still triggered a negative reaction from investors.

The cybersecurity leader reported non-GAAP earnings of $0.80 per share, meaningfully exceeding analysts’ consensus estimates of $0.77, representing a 3.59% positive surprise. Revenue also came in above expectations at $2.29 billion compared to the projected $2.28 billion, marking a 15% increase from the $1.98 billion reported in the same quarter last year.

A particularly bright spot in the report was the company’s Next-Generation Security annual recurring revenue (ARR), which grew 34% year-over-year to reach $5.1 billion, highlighting the ongoing success of Palo Alto’s platformization strategy in the cybersecurity space.

From a profitability standpoint, Palo Alto Networks generated GAAP net income of $262.1 million, or $0.37 per diluted share, which represented a slight decline from $278.8 million, or $0.39 per share, in the year-ago period. However, on a non-GAAP basis, net income improved to $560.9 million from $454.9 million a year earlier.

In terms of guidance, the company projected fourth-quarter non-GAAP earnings per share between $0.87 and $0.89, slightly ahead of analysts’ estimates of $0.86, and forecast total revenue in the range of $2.49 billion to $2.51 billion, representing year-over-year growth of 14% to 15%.

For the full fiscal year 2025, Palo Alto Networks maintained its outlook for non-GAAP operating margin between 28.2% and 28.5%.

Despite these seemingly positive results, investors appeared concerned about several factors that led to the stock’s premarket decline. Most notably, the company reported a non-GAAP gross margin of 76%, which fell short of analysts’ expectations of 77.2%, suggesting potential pricing pressure or higher costs in the competitive cybersecurity landscape.

CEO Nikesh Arora emphasized the company’s progress on its platformization strategy, noting, “In Q3, we continued to make progress on our platformization strategy and achieved an important milestone in crossing $5 billion in Next-Gen Security ARR.”

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PANW Stock Premarket Catch Up: the Long and Short Case

Palo Alto Networks stock was trading at $187.44 in Wednesday’s premarket session as of 6:30 AM EDT, representing a significant decline of $7.04 or 3.62% from Tuesday’s regular session close of $194.48.

This downward pressure followed the company’s fiscal third-quarter earnings report released after market close on Tuesday. The premarket selling comes despite the stock closing Tuesday’s regular session with a slight gain of $0.18 or 0.09%, indicating that investors initially had neutral to slightly positive expectations ahead of the results.

The current premarket price represents a substantial retreat from the stock’s recent trading range, sitting well below its 52-week high of $393.33.

The drop is particularly notable given PANW’s generally positive performance metrics across multiple timeframes before this pullback, with year-to-date returns of 6.88%, one-year returns of 20.13%, and impressive three-year and five-year returns of 143.77% and 397.65% respectively, all of which had significantly outpaced the S&P 500’s performance over the same periods.

From a technical perspective, the premarket decline pushes the stock below several key moving averages, potentially triggering additional technical selling pressure if these levels are not reclaimed during the regular session.

The stock’s valuation metrics show it trading at a trailing P/E ratio of 109.88 and a forward P/E of 52.91 based on Tuesday’s close, figures that remain elevated compared to the broader market despite the recent pullback. The current premarket level also places the stock substantially below the average analyst price target of $212.38, suggesting that most Wall Street analysts see significant potential upside from current levels.

However, the immediate reaction indicates that investors are focusing more on near-term concerns about margins and growth trajectory rather than the company’s long-term strategic positioning in the cybersecurity market. Trading volume in the premarket session has been relatively high, suggesting significant institutional activity rather than just retail selling, and indicating that the downward move may reflect a meaningful reassessment of the company’s near-term prospects by larger investors.

If the current premarket losses hold through the regular session, today would mark one of the more significant single-day declines for PANW in recent months, potentially creating what some technical analysts might view as an oversold condition that could attract buyers looking for entry points into a stock that has demonstrated strong long-term outperformance.

Disclaimer: The author does not hold or have a position in any securities discussed in the article. All stock prices were quoted at the time of writing.