Palo Alto Networks cuts annual profit forecast as deal costs bite, shares fall

Feb 17 (Reuters) - Palo Alto Networks PANW.O trimmed its annual profit forecast on Tuesday, signaling rising costs from recent acquisitions to enhance AI capabilities, sending the cybersecurity company's shares down around 7% in extended trading.

The company announced on Tuesday the acquisition of Israeli cybersecurity startup Koi, following last July's purchase of CyberArk Software in its largest deal to date and the buyout of Chronosphere in November, as it steps up efforts to counter AI-driven cyber threats.

Palo Alto said acquisition-related costs jumped to $24 million in the second quarter, from $10 million a year earlier.

While acquisitions expand the total addressable market, the company has acknowledged the challenge of effectively integrating larger acquired companies, such as CyberArk, which require more reengineering and restructuring.

The company now expects adjusted profit per share of $3.65 to $3.70 for its fiscal 2026, down from its prior forecast of $3.80 to $3.90.

However, Palo Alto raised its annual revenue forecast to between $11.28 billion and $11.31 billion, compared with its earlier expectations of $10.50 billion to $10.54 billion.

Clients are stepping up investments in modernizing their security operations amid a wave of high-profile cyberattacks that have hit global companies, including F5 FFIV.O and UnitedHealth Group UNH.N.

The company said its quarterly and annual forecasts are inclusive of both CyberArk and Chronosphere acquisitions.

Palo Alto forecast third-quarter revenue of about $2.94 billion to $2.95 billion, above analysts' average estimate of $2.60 billion, according to data compiled by LSEG.

Its quarterly adjusted profit per share forecast of 78 cents to 80 cents was below estimates of 92 cents.

Revenue for the second quarter rose 15% to $2.59 billion, in line with estimates.

Adjusted profit per share of $1.03 beat estimates of 94 cents for the three months ended January 31.