Stock Analysis on Net
Stock Analysis on Net

Palo Alto Networks Inc. (NASDAQ:PANW)

Common-Size Income Statement

Palo Alto Networks Inc., common-size consolidated income statement

Microsoft Excel
12 months ended: Jul 31, 2026 Jul 31, 2025 Jul 31, 2024 Jul 31, 2023 Jul 31, 2022 Jul 31, 2021
Product 19.86 19.54 19.97 22.90 24.78 26.32
Subscription and support 80.14 80.46 80.03 77.10 75.22 73.68
Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Product -4.95 -4.48 -4.34 -6.07 -8.28 -7.25
Subscription and support -24.70 -22.10 -21.31 -21.64 -22.96 -22.71
Cost of revenue -29.64% -26.59% -25.65% -27.71% -31.24% -29.95%
Gross profit 70.36% 73.41% 74.35% 72.29% 68.76% 70.05%
Research and development -22.23 -21.52 -22.54 -23.27 -25.77 -26.79
Sales and marketing -34.24 -33.62 -34.81 -36.91 -39.06 -41.21
General and administrative -7.83 -4.80 -8.48 -6.50 -7.36 -9.19
Operating expenses -64.30% -59.94% -65.83% -66.67% -72.19% -77.19%
Operating income (loss) 6.05% 13.48% 8.52% 5.62% -3.43% -7.15%
Interest income 3.26 3.94 3.96 3.26 0.28 0.20
Interest expense 0.00 -0.03 -0.10 -0.39 -0.50 -3.84
Foreign currency exchange gains (losses), net -0.30 -0.36 0.00 -0.11 0.03 -0.13
Change in fair value of convertible senior notes -5.40 0.00 0.00 0.00 0.00 0.00
Change in fair value of Capped Calls 0.51 0.00 0.00 0.00 0.00 0.00
Other, net 0.56 0.27 -0.07 -0.15 -0.15 -0.02
Other income (expense), net -1.39% 3.83% 3.79% 2.60% -0.33% -3.78%
Income (loss) before income taxes 4.67% 17.30% 12.31% 8.22% -3.77% -10.93%
(Provision for) benefit from income taxes -1.99 -5.01 19.80 -1.84 -1.09 -0.80
Net income (loss) 2.67% 12.30% 32.11% 6.38% -4.85% -11.72%

Based on: 10-K (reporting date: 2026-07-31), 10-K (reporting date: 2025-07-31), 10-K (reporting date: 2024-07-31), 10-K (reporting date: 2023-07-31), 10-K (reporting date: 2022-07-31), 10-K (reporting date: 2021-07-31).

The financial trajectory indicates a strategic transition toward a recurring revenue model and improved operational leverage over the analyzed period. A consistent shift is observed in the revenue mix, with subscription and support services increasing from 73.68% in 2021 to 80.14% by 2026, while product-based revenue declined from 26.32% to 19.86% during the same timeframe.

Gross Profitability and Cost Management
Gross profit margins remained strong, fluctuating between 68.76% and 74.35%. A peak in gross margin was reached in 2024 at 74.35%, coinciding with the lowest cost of revenue at 25.65%. However, a contraction is observed in 2026, where gross profit declined to 70.36% as cost of revenue rose to 29.64%.
Operating Expense Trends
A sustained reduction in operating expenses as a percentage of revenue is evident. Total operating expenses fell from 77.19% in 2021 to 64.30% in 2026. This improvement was driven by reductions across all major categories: sales and marketing decreased from 41.21% to 34.24%, research and development decreased from 26.79% to 22.23%, and general and administrative expenses trended downward from 9.19% to 7.83%.
Operating Income Evolution
The company transitioned from operating losses to profitability. Operating income shifted from a loss of 7.15% in 2021 to a peak gain of 13.48% in 2025. A subsequent decline to 6.05% in 2026 is observed, reflecting the increase in cost of revenue and a slight uptick in operating expenses during that final period.
Net Income and Non-Operating Impacts
Net income exhibited significant volatility, moving from a loss of 11.72% in 2021 to a peak of 32.11% in 2024. The 2024 surge was heavily influenced by a substantial tax benefit of 19.80% of revenue. By 2026, net income narrowed to 2.67%, impacted by a significant non-cash charge related to the change in fair value of convertible senior notes, which reduced income by 5.40% of revenue.
Interest and Other Income
A favorable trend is observed in net interest positioning. Interest income rose from 0.20% in 2021 to a peak of 3.96% in 2024, while interest expense declined sharply from 3.84% in 2021 to nearly zero by 2025, indicating a strengthened balance sheet and reduced debt servicing costs relative to revenue.

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