Cybersecurity company Palo Alto Networks lowered its yearly earnings outlook on Tuesday, citing increased expenses from a series of company acquisitions designed to strengthen its artificial intelligence security offerings. The announcement caused the firm’s stock price to drop approximately 7% during after-hours trading.
The technology company revealed Tuesday it had purchased Israeli cybersecurity firm Koi, adding to its acquisition streak that included buying CyberArk Software last July in its biggest transaction ever, followed by the Chronosphere purchase in November. These deals are part of the company’s strategy to better defend against cyber threats powered by artificial intelligence.
Acquisition-related expenses soared to $24 million during the second quarter, a significant jump from the $10 million recorded in the same period last year, according to Palo Alto Networks.
Although these purchases help expand the company’s market opportunities, executives have recognized the difficulties of successfully merging larger acquired firms like CyberArk, which demand extensive reengineering and organizational changes.
The company revised its adjusted earnings per share projection for fiscal 2026 to a range of $3.65 to $3.70, down from the previously anticipated $3.80 to $3.90.
Despite the profit reduction, Palo Alto Networks increased its yearly revenue expectations to between $11.28 billion and $11.31 billion, surpassing earlier projections of $10.50 billion to $10.54 billion.
Businesses are increasing their security infrastructure investments as they respond to a series of major cyberattacks targeting prominent corporations, including F5 and UnitedHealth Group.
The company stated that both quarterly and annual projections incorporate the financial impact of the CyberArk and Chronosphere acquisitions.
For the upcoming third quarter, Palo Alto Networks projected revenue between $2.94 billion and $2.95 billion, exceeding Wall Street analysts’ average prediction of $2.60 billion based on LSEG data.
The company’s quarterly adjusted earnings per share forecast of 78 to 80 cents fell short of analyst expectations of 92 cents.
Second-quarter revenue increased 15% to $2.59 billion, meeting analyst projections.
The company’s adjusted earnings per share of $1.03 exceeded analyst estimates of 94 cents for the quarter ending January 31.
