Netskope’s Earnings Call: Strong Growth Amid Challenges

Netskope, Inc. ((NTSK)) has held its Q3 earnings call. Read on for the main highlights of the call.

Netskope’s recent earnings call conveyed a generally positive sentiment, underscored by robust financial and operational achievements. The company showcased significant growth in annual recurring revenue (ARR) and overall revenue, alongside notable customer expansion and industry accolades. However, these accomplishments were tempered by challenges such as substantial stock-based compensation expenses and prevailing market uncertainties.

Annual Recurring Revenue Growth

Netskope reported a remarkable 34% year-over-year increase in annual recurring revenue, reaching an impressive $754 million. This growth highlights the company’s strong market position and its ability to consistently attract and retain customers.

Revenue Growth

The third quarter saw Netskope’s revenue grow by 33% year-over-year, totaling $184 million. This substantial increase underscores the company’s successful execution of its business strategies and its growing influence in the market.

Free Cash Flow and Operating Margin

Netskope generated $11 million in free cash flow, with an improved operating margin by 11 percentage points year-over-year. These financial metrics reflect the company’s efficient operational management and its focus on enhancing profitability.

Customer and Geographical Expansion

The company demonstrated strong performance across all geographies, securing significant wins in various verticals such as financial services, healthcare, and government. This expansion indicates Netskope’s effective global strategy and its ability to cater to diverse industry needs.

Product Adoption

A significant portion of Netskope’s customer base is leveraging multiple products, with 53% using more than four products and 26% using more than six from the Netskope One platform. This indicates a deepening customer engagement and trust in the company’s comprehensive solutions.

Recognition and Partnerships

Netskope was named a leader in multiple industry analyst reports and expanded its partnerships with major players like Microsoft. These recognitions and alliances enhance the company’s credibility and broaden its market reach.

Stock-Based Compensation Expense

The company recognized a large one-time stock-based compensation expense, resulting in a GAAP net loss of $453 million. This significant expense highlights a financial challenge that Netskope needs to manage moving forward.

Change in Billing Terms

Netskope shifted to annual billing for multi-year contracts, which may introduce near-term variability in cash flow. This strategic change aims to streamline financial operations but requires careful management to mitigate potential cash flow fluctuations.

Market and Economic Uncertainty

The company acknowledged the uncertain macroeconomic and geopolitical environment, which could impact future guidance. Netskope remains vigilant in navigating these challenges to sustain its growth trajectory.

Forward-Looking Guidance

For the fourth quarter, Netskope anticipates revenue between $188 million and $190 million, with an operating margin of negative 13% to negative 14% and a net loss per share ranging from $0.05 to $0.07. For the full fiscal year 2026, the company expects revenue between $701 million and $703 million, representing approximately 30% growth at the midpoint. Netskope projects a gross margin of about 75%, an operating margin of negative 16.5% to 17%, and a net loss per share of $0.51 to $0.53. The company also forecasts free cash flow for the fiscal year to be between $5 million and $8 million, emphasizing its strategic focus on innovation and growth, particularly in cloud security, networking, analytics, and AI solutions.

In summary, Netskope’s earnings call painted a picture of a company on a robust growth path, with significant achievements in revenue and customer expansion. Despite facing challenges such as stock-based compensation expenses and market uncertainties, Netskope remains committed to its strategic goals, focusing on innovation and expanding its market presence. Investors and stakeholders will be keenly watching how the company navigates the evolving economic landscape to achieve its ambitious targets.