PANW · 10-K · 2026A · Full report

Gross Margin Drivers

Palo Alto Networks Inc · 2026-09-10 · Importance 54 · Surprise 40 · From source text

Total gross profit increased to $8.077 billion in fiscal 2026 from $6.770 billion, but total gross margin declined to 70.4% from 73.4%. Product gross margin fell to 75.1% from 77.1% because of lower hardware margins, supply-chain challenges, and higher amortization of acquired intangible assets, partly offset by higher CyberArk software-license revenue and lower inventory excess and obsolete charges. Subscription and support gross margin decreased to 69.2% from 72.5% because of acquisition-related intangible amortization and higher costs for cloud-based offerings. Total cost of revenue rose to $3.403 billion from $2.451 billion, including a $797 million increase in subscription and support costs driven by cloud hosting, acquisition amortization, and personnel growth.

Key facts

• Cost of subscription and support revenue for fiscal 2026 was $2,835 million, up from $2,038 million in fiscal 2025, primarily due to higher cloud hosting costs, amortization of intangible assets from acquisitions, and personnel costs driven by headcount growth including from acquisitions. source
• For fiscal 2026, total gross profit was $8,077 million and total gross margin was 70.4%. source
• Total cost of revenue for fiscal 2026 was $3,403 million, or 29.6% of revenue. source
• Product gross profit for fiscal 2026 was $1,712 million with product gross margin of 75.1%. source
• Subscription and support gross profit for fiscal 2026 was $6,365 million with gross margin of 69.2%. source
• Palo Alto Networks stated that higher amortization of intangible assets and increased cloud hosting costs contributed to decreased subscription and support gross margin in fiscal 2026 compared to fiscal 2025. source
• Palo Alto Networks stated that higher-end firewall products generally have higher gross margins than lower-end firewall products within each product series. source

Impact estimates