Palo Alto Networks Stock Down 14% On Dubious $25 Billion CyberArk Buy

Forbes

4 days ago

PARIS, FRANCE - JUNE 11: Chief executive officer at Palo Alto Networks Inc., Nikesh Arora attends ... More the 9th edition of the VivaTech trade show at the Parc des Expositions de la Porte de Versailles on June 11, 2025, in Paris. VivaTech, Europe's largest tech trade show, offers a unique digital format for four days of reconnection and recovery through innovation. The event brings together startups, CEOs, investors, technology leaders, and all the digital transformation players shaping the future of the internet. Founded in 2016 by Publicis Groupe and Groupe Les Echos, this annual technology conference, also known as VivaTech, is dedicated to promoting innovation and startups.. (Photo)
Santa Clara, Calif.-based cybersecurity platform provider Palo Alto Networks stock has lost 14% of its peak value since inking a deal to acquire Newton, Mass.-based privileged access management supplier CyberArk for $25 billion, according to CNBC.
I wonder whether this deal is a strategic response to Google's $32 billion acquisition of Wiz, a cloud security services provider, which long criticized Palo Alto for its tendency to acquire, rather than build, new cybersecurity services.
Is the dip in Palo Alto's stock a buying opportunity? Here are reasons for skepticism:
Palo Alto and CyberArk are both bullish on this deal. 'Our market entry strategy has always been to enter categories at their inflection point, and we believe that moment for Identity Security is now," Palo Alto Networks Chairman and CEO Nikesh Arora said in a press release.
CyberArk sees this deal as accelerating the company's mission. 'This is a profound moment in CyberArk's journey," Founder and Executive Chairman of CyberArk Udi Mokady said, according to the release.
'From the beginning, we set out to protect the world's most critical assets, with a relentless focus on innovation, trust, and security. Joining forces with Palo Alto Networks is a powerful next chapter, built on shared values and a deep commitment to solving the toughest identity challenges,' he added.
Palo Alto's $25 Billion Deal To Acquire CyberArk
Palo Alto – which operates a platform including advanced firewalls and cloud-based offerings -- will pay $45 a share for CyberArk – specializes in identity security which secures sensitive information and who can access it, noted CNBC.
This $25 billion deal – including $45 in cash and 2.2005 shares of Palo Alto Networks common stock for each CyberArk share – represents a 26% premium to its share price July 25, according to the release.
The merger will help Palo Alto add an important new service to its platform. Palo Alto will extend CyberArk's PAM capabilities to human, machine, and autonomous AI agent identity types while helping CyberArk in its 'journey towards platformization,' noted the release.
Palo Alto's Recent Performance And Prospects Lag CyberArk's
Both companies plan to report their second quarter results next month. However, based on their first quarter reports, CyberArk is growing much faster than Palo Alto.
For example, in the first quarter, CyberArk beat and raised. For example, the company's revenues grew 43.4% to $317.6 million – 3.9% above the consensus. CyberArk also raised guidance for the second quarter above the consensus – suggesting 38.4% growth to a range between $312 million and $318 million, noted Yahoo! Finance.
Palo Alto did not do as well. While the company exceeded revenue expectations, it fell short on gross margin and remaining performance obligations. Palo Alto's fiscal third-quarter grew 15% to $2.29 billion – $10 million ahead of consensus while its non-GAAP gross margin of 76% trailed analysts' estimates of 77.2%, noted CNBC. RPO grew 19% to $13.5 billion, 'at the lower end of expectations of $13.5 billion to $13.6 billion,' noted Proactive.
Potential Advantages And Disadvantages Of This Deal
The acquisition offers significant advantages and risks. If Palo Alto can integrate CyberArk's services into its platform, the combined companies could win more customers and increase the amount each customer buys. However, the deal faces considerable risks – notably, the high price tag, potential integration challenges, and the negative reaction of investors to the deal.
Observers seem to have a negative view:
CyberArk will only be better off from this cash and stock deal if the combined company can grow much faster than investors expect. But at the moment, CyberArk – which seems much better at spurring organic growth – generated a mere 14% of Palo Alto's revenues.
Can the cultures of these two companies align well enough to provide customers an industry-leading platform? It could be years before we know the answer.