S-1: Netskope IPO Filing: Cloud & AI Security Redefined

Netskope, a leader in cloud and AI security, files for its initial public offering, showcasing rapid revenue growth and strong customer retention despite continued net losses.

Summary

• Netskope is redefining security and networking for the cloud and AI era with its Netskope One platform.
• The total addressable market for Netskope's unified solution is projected to reach $138.9 billion by 2028, growing at a 16.8% compound annual growth rate (CAGR) from 2024-2028.
• The AI security market is projected to grow to $30.8 billion by 2028, contributing an incremental $9.9 billion to the estimated total addressable market.
• The company had 4,317 customers as of July 31, 2025, representing a 21% year-over-year (YOY) increase.
• Over 30% of the Fortune 100 and approximately 18% of the Forbes Global 2000 are Netskope customers.
• Annual Recurring Revenue (ARR) increased 33% YOY to $707 million as of July 31, 2025, compared to $531 million as of July 31, 2024.
• Revenue increased 31% YOY to $328 million for the six months ended July 31, 2025, compared to $251 million for the six months ended July 31, 2024.
• Net loss improved to $170 million for the six months ended July 31, 2025, compared to $207 million for the six months ended July 31, 2024.
• The dollar-based Net Retention Rate (NRR) increased to 118% as of July 31, 2025, compared to 113% as of July 31, 2024.
• The dollar-based Gross Retention Rate (GRR) increased to 96% as of July 31, 2025, compared to 95% as of July 31, 2024.
• Loss from operations improved to $91 million for the six months ended July 31, 2025, from $161 million for the six months ended July 31, 2024.
• Non-GAAP loss from operations improved to $63 million for the six months ended July 31, 2025, from $123 million for the six months ended July 31, 2024.
• Operating cash flow margin improved to 3% for the six months ended July 31, 2025, from (42%) for the six months ended July 31, 2024.
• The company has a history of net losses, with an accumulated deficit of $2.1 billion as of July 31, 2025.
• Significant stock-based compensation expense, estimated at $315.8 million if the IPO had been completed by July 31, 2025, is expected to be recognized related to RSUs upon the IPO.
• A multi-class stock structure will concentrate voting control with holders of Class B common stock (pre-offering stockholders).

Sentiment

Score: 7

Explanation: The filing presents a strong growth story with improving financial metrics and market leadership in a critical and expanding sector (cloud and AI security). The company's improving operational efficiency and positive cash flow from operations are encouraging. However, it still has a history of significant losses and faces intense competition, with substantial IPO-related expenses expected. The multi-class stock structure also presents a governance concern for new investors.

Positives

• Strong revenue growth: 31% YOY for the six months ended July 31, 2025, and 32% for fiscal year 2025.
• High Annual Recurring Revenue (ARR) growth: 33% YOY to $707 million as of July 31, 2025.
• Excellent customer acquisition and expansion: 21% YOY customer increase, with a Net Retention Rate (NRR) of 118% and Gross Retention Rate (GRR) of 96% as of July 31, 2025.
• Substantial market opportunity in cloud and AI security, projected to reach $138.9 billion by 2028, with an incremental $9.9 billion from AI security.
• Improved profitability metrics: reduced net loss, improved operating loss, and positive operating cash flow margin of 3% for the six months ended July 31, 2025.
• Strong industry recognition as a leader in Gartner Magic Quadrant for Security Service Edge (SSE) and SASE Platforms, Forrester Wave, and IDC MarketScape for Worldwide DLP.
• Deep technology moat with patented AI/ML models (over 160 ML models, 40+ patents) infused across the Netskope One platform.
• Extensive global private cloud network (NewEdge) with over 120 data centers in more than 75 regions, offering a 99.999% uptime guarantee and lower latency compared to competitors like Palo Alto Networks and Zscaler.
• Diversified customer base with no single customer accounting for more than 3% of ARR, including over 30% of Fortune 100 and 18% of Forbes Global 2000 companies.
• Strong LTV:CAC ratio, exceeding 10x for the three months ended July 31, 2025, and greater than 8x for the last four fiscal quarters.
• Achieved FedRAMP High Authorization and other global certifications, facilitating expansion into the public sector.

Negatives

• History of significant net losses: $344.9 million in fiscal 2024, $354.5 million in fiscal 2025, and $169.5 million for the six months ended July 31, 2025.
• Accumulated deficit of $2.1 billion as of July 31, 2025.
• Anticipated significant increase in operating expenses in the near term due to IPO-related stock-based compensation, estimated at $315.8 million if the IPO had been completed by July 31, 2025.
• Sales cycle is long and unpredictable, requiring considerable time and expense, particularly for large enterprises and government entities.
• Intense competition from larger, well-established companies such as Broadcom, Cisco, Fortinet, Palo Alto Networks, and Zscaler.
• Reliance on a limited number of global vendors and suppliers for certain equipment, software, and services, exposing the company to supply chain risks.
• Exposure to fluctuations in currency exchange rates, which could negatively affect operating results.
• Servicing substantial indebtedness, with $518.9 million in principal and accrued interest on Convertible Notes as of July 31, 2025, may require significant cash flow.
• The multi-class stock structure concentrates voting control with pre-offering stockholders, limiting the influence of Class A common stock holders.

Risks

• Inability to achieve or sustain profitability due to a history of losses and anticipated increases in operating expenses.
• Recent rapid growth rates may not be indicative of future growth, and the revenue growth rate is expected to decline.
• Failure to acquire new customers, renew existing arrangements, or expand sales to existing customers.
• The market for security, networking, and analytics may not grow as projected, or customer adoption of cloud-based solutions may be insufficient.
• Dependence on the success of relationships with channel partners; consolidation in the partner ecosystem could increase reliance on individual partners.
• Operating results may fluctuate significantly, making future results difficult to predict and potentially causing them to fall below expectations.
• Failure to effectively develop and expand sales and marketing capabilities, particularly in the U.S. and internationally.
• Long and unpredictable sales cycle, requiring considerable time and expense, especially for large enterprises and government entities.
• Reliance on third parties for essential financial and operational services, with potential for failure or disruption.
• Inaccuracies in tracking business and operational metrics could harm reputation and stock price.
• Estimated market opportunity and growth forecasts may prove inaccurate.
• Exposure to fluctuations in currency exchange rates, which could negatively affect operating results.
• Exposure to the credit and liquidity risk of customers, and to credit exposure in weakened markets, potentially resulting in material losses.
• Failure to obtain, maintain, protect, defend, or adequately enforce intellectual property or proprietary rights, which could impair competitive position and lead to costly litigation.
• Risks associated with the use and integration of AI and ML, including business, compliance, and reputational challenges, and evolving legal/regulatory environments.
• Internal networks, systems, or data breaches, or perceived breaches, could damage reputation and negatively impact financial results.
• Actual or perceived failure of the platform and products to block malware or prevent security breaches could harm reputation and adversely impact business.
• Inability to satisfy data protection, security, privacy, and other governmentand industry-specific requirements or regulations.
• Servicing substantial indebtedness may require a significant amount of cash, and debt could expose the company to other risks.
• The multi-class structure of common stock concentrates voting control with Class B holders, limiting the ability of Class A holders to influence corporate matters.
• Uncertainty regarding the effect of the multi-class structure on the trading price of Class A common stock.
• Absence of a public trading market for Class A common stock prior to the offering, and no guarantee of an active or sustained trading market.
• If industry or financial analysts do not publish research or issue inaccurate or unfavorable research, or change recommendations adversely, stock price and trading volume could decline.
• Sales of substantial amounts of Class A common stock in the public markets, or the perception of such sales, could reduce the price and dilute voting power and ownership interest.
• Need for additional capital, with no certainty that additional financing will be available on favorable terms, or at all.
• Reduced disclosure requirements applicable to an 'emerging growth company' may make Class A common stock less attractive to investors.
• Management team has limited experience managing a public company, potentially straining resources and distracting management.
• Potential impact from activist shareholders or others, leading to costly and time-consuming challenges.
• Delaware law and provisions in the amended and restated certificate of incorporation and bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the market price.
• Risks associated with potential growth of the business within certain heavily regulated industry verticals.
• Subject to anti-corruption, anti-bribery, and similar laws, with noncompliance potentially leading to criminal penalties or significant fines.
• Subject to governmental export and import controls and trade and economic sanctions, which could impair ability to compete internationally.
• Subject to the tax laws of various jurisdictions, with potential for being obligated to pay additional taxes.
• Ability to use net operating loss carryforwards and certain other tax attributes may be limited.
• Business is subject to risks of earthquakes, fire, floods, other natural catastrophic events, and man-made problems such as power disruptions, computer viruses, acts of war, and terrorism.

Future Outlook

Netskope anticipates continued rapid growth, driven by ongoing investments in sales, marketing, and research and development, and expects to expand its market presence domestically and internationally. The company projects its total addressable market to reach $138.9 billion by 2028, with an incremental $9.9 billion from AI security. Netskope aims for long-term growth and improved operational efficiencies, expecting non-GAAP gross margin, non-GAAP operating margin, and free cash flow margin to improve over the long term. However, it also expects operating expenses to increase in the near term due to IPO-related stock-based compensation.

Management Comments

• We are redefining security and networking for the era of cloud and AI.
• Netskope One isn't just a platform; it's the key to unlocking the full potential of the cloud, AI, and ultimately organizations.
• We built Netskope to fight back, to empower businesses to fully embrace technology without compromise, and to ensure that everyone, everywhere, can have a fast, seamless, and secure digital experience.
• I have always believed in the phrase 'innovate or die'; it's a core principle at Netskope.
• Becoming a public company is not the destination, but rather another significant milestone on our journey.
• Our high win rate (our 'batting average' as I like to call it) speaks volumes about the platform's strength.
• Going public, in our view, is about getting us more 'at bats,' and expanding our awareness, reach, and hence positive impact.
• We are still in the early innings of a market we've re-imagined and helped define.
• We will continue to prioritize long-term success over short-term gains.
• Netskope is committed to continuous improvement and innovation in the security landscape. They enabled us to operationalize Adaptive Trust at scale, securely connecting users to data with precision, performance, and policy control, anywhere, anytime, on any device. (Shirin Khimji, Global Head of Zero Trust, ASICS Technology Ltd)
• Netskope is a valued partner for us, seamlessly integrating networking and security into a single platform and streamlining our data protection processes. (Colgate-Palmolive)
• The Netskope One platform offers superior protection and performance. As we have built a global business, we remain deliberate about the technology providers we partner with as we expand. Netskope is a strategic vendor for Exclusive and in high demand with customers wanting to make a successful, secure transition to a cloud-first technology environment. (Paul Eccleston, Chief Business Innovation Officer, Exclusive Networks)
• We consider Netskope one of our most important strategic partners for security and networking. The Netskope One platform has allowed us to consolidate technology platforms, reduce costs, protect data from constant threats, and enable modern, hybrid work with safe access to cloud, web, Al, and private applications. (CIO, global services company)

Industry Context

The filing highlights a 'seismic shift' from the internet era to a digital world driven by cloud and AI, creating a complex mesh of global connections and unprecedented data scale. Traditional security and networking solutions are 'broken' and inadequate for this new landscape, leading to a trade-off between performance and security. Netskope positions its unified, cloud-native platform as the solution to these evolving challenges, enabling secure, high-performance digital interactions and addressing emerging threats like ransomware-as-a-Service and deepfakes, while also navigating growing data privacy regulations. The company is in the 'early days' of addressing the nascent AI security market, which it projects to contribute significantly to its total addressable market.

Comparison to Industry Standards

• Recognized as a Leader in Gartner Magic Quadrant for Security Service Edge (SSE) every year since its inception (2022-2025), positioning furthest in completeness of vision and among the top two in ability to execute in the 2023, 2024, and 2025 reports.
• Ranked highest in the 2025 Gartner Critical Capabilities for SSE report in three of the six use cases evaluated (Essential SSE, Private Application Access, and SaaS Enablement), and the only Magic Quadrant for SSE Leader to rank in the top two for all six use cases.
• Recognized as a Leader in Gartner Magic Quadrant for SASE Platforms in 2024 and 2025, positioning furthest in completeness of vision and among the top two in ability to execute in the 2025 report.
• Ranked highest in the 2025 Gartner Critical Capabilities for SASE Platforms report in three of the four use cases evaluated (Foundational SASE Platform, Zero Trust SASE Platform, and 'Coffee Shop' Networking), achieving the highest aggregate score overall.
• Identified as a Leader in The Forrester Wave: Security Service Edge (SSE) Solutions for Q1 2024, scoring the highest in the current offering category of all vendors evaluated.
• Recognized as a leader in the 2025 IDC MarketScape for Worldwide DLP Vendor Assessment.
• Performance testing conducted in May 2025 demonstrated lower latency for connections to Netskope's NewEdge network in leading global cities compared to competitors such as Palo Alto Networks and Zscaler.

Management Changes

Corporate Governance

Legal Proceedings

• In 2022, Netskope filed for declaratory judgment in the Northern District of California in response to communications from Fortinet alleging patent infringement; this proceeding remains ongoing.
• No other material litigation or regulatory matters are currently pending or threatened.

Related Party Transactions

• Amended and Restated Investors' Rights Agreement (dated July 7, 2021, amended October 2, 2024) with entities affiliated with Lightspeed Venture Partners, Accel, and ICONIQ, granting demand and piggyback registration rights.
• Right of First Refusal and Co-Sale Agreement (dated July 7, 2021) with certain stockholders, including entities affiliated with Lightspeed Venture Partners, Accel, ICONIQ, and Mr. Beri (including an affiliated trust), which will terminate upon the completion of this offering.
• Amended and Restated Voting Agreement (dated July 7, 2021) with certain stockholders, including entities affiliated with Lightspeed Venture Partners, Accel, ICONIQ, and Mr. Beri (including an affiliated trust), which will terminate upon the completion of this offering.
• CEO Sanjay Beri is expected to enter into a new voting agreement with one of the non-executive co-founders for up to % of the voting power of outstanding capital stock following the completion of this offering.
• Indemnification agreements have been entered into or will be entered into with each of the company's directors and executive officers.
• A formal, written policy regarding related person transactions will be adopted upon the effectiveness of the registration statement.

Stakeholder Impact

• **Shareholders**: New Class A common stock holders will experience immediate and substantial dilution. The multi-class stock structure concentrates voting control with pre-offering Class B holders, limiting the influence of Class A shareholders. The market price of Class A common stock may be volatile, and there is no guarantee of an active trading market. Sales of restricted shares after lock-up periods could also depress the stock price.
• **Employees**: Equity compensation plans (2025 Stock Incentive Plan, 2025 Employee Stock Purchase Plan) are designed to attract, retain, and reward personnel. The Executive Change in Control and Severance Plan provides specified benefits for certain involuntary terminations. However, the at-will nature of employment is maintained, and the value of equity awards is subject to market fluctuations.
• **Customers**: The Netskope One platform aims to accelerate and secure organizations' adoption of cloud and AI, reduce risks, enable fast and resilient digital experiences, support hybrid/remote work, and reduce costs/complexity. Risks of platform failures, security breaches, or inadequate customer support could negatively impact customer satisfaction and retention.
• **Suppliers/Partners**: The company relies on a broad and deep partner ecosystem for distribution and go-to-market reach. Concentration among certain vendors for equipment and services could pose supply chain risks. Technology partnerships are crucial for comprehensive solutions.
• **Creditors**: The company has substantial indebtedness from Convertible Notes, with repayment obligations. The terms of this debt could restrict future operations and capital needs. The IPO proceeds may be used to repay a portion of this debt.

Next Steps

• Complete the initial public offering (IPO) of Class A common stock.
• List Class A common stock on the Nasdaq Global Select Market under the symbol 'NTSK'.
• Continue investing in research and development to drive innovation and strengthen technology leadership.
• Expand salesforce and channel partners domestically and internationally.
• Pursue acquisition of public sector customers, leveraging FedRAMP High Authorization and other certifications.
• Evaluate strategic M&A opportunities to enhance platform capabilities.
• Manage the recognition of significant stock-based compensation expense related to RSUs upon IPO.
• Comply with public company reporting requirements and corporate governance standards.
• Address evolving legal and regulatory environments, especially concerning AI and data privacy.

Key Dates

Recommendation

Netskope demonstrates strong growth and market leadership in a critical and expanding sector (cloud and AI security). The company's improving operational efficiency and positive cash flow from operations are encouraging. However, it still carries a significant accumulated deficit and faces intense competition, with substantial IPO-related expenses expected. The multi-class stock structure also presents a governance concern for new investors. While the long-term outlook is promising, the current financial position and the inherent risks of a rapidly evolving market suggest a 'Hold' recommendation for now, awaiting further evidence of sustained profitability and successful navigation of competitive and operational challenges post-IPO.

Keywords

Netskope, Cloud Security, AI Security, SASE, SSE, Zero Trust, Cybersecurity, Network Security, DLP, IPO, S-1, Software-as-a-Service, ARR, NRR, NewEdge, Corporate Governance, Risk Management