10-Q: Netskope Q3 2026: IPO Boosts Cash, Losses Widen

Netskope, Inc. reported its third-quarter 2026 financial results, showing significant revenue growth driven by new customer acquisition and expansion, alongside a substantial increase in net loss primarily due to IPO-related stock-based compensation.

Summary

• Revenue for the three months ended October 31, 2025, increased by 33% to $184.173 million, compared to $138.532 million for the same period in 2024.
• Net loss for the three months ended October 31, 2025, significantly widened to $(453.075) million, from $(70.743) million in the prior year's quarter.
• For the nine months ended October 31, 2025, revenue grew 32% to $512.667 million, up from $389.782 million in the corresponding period of 2024.
• The nine-month net loss for October 31, 2025, was $(622.618) million, compared to $(277.472) million for the nine months ended October 31, 2024.
• Gross profit for the three months ended October 31, 2025, was $106.643 million, an increase of 16% from $91.767 million in the prior year, but gross margin decreased to 58% from 66%.
• Total operating expenses for the three months ended October 31, 2025, surged to $553.613 million from $145.601 million in the prior year, primarily due to $410.472 million in stock-based compensation expense recognized upon the IPO.
• The company completed its Initial Public Offering (IPO) in September 2025, raising approximately $992.2 million in net proceeds.
• Cash and cash equivalents significantly increased to $984.652 million as of October 31, 2025, from $166.012 million as of January 31, 2025.
• The Dollar-Based Net Retention Rate (NRR) was 118% as of October 31, 2025, an increase from 113% as of October 31, 2024.
• Net cash provided by operating activities for the nine months ended October 31, 2025, was $19.950 million, a substantial improvement from net cash used of $(116.798) million in the prior year period.
• Remaining performance obligations totaled $1.1 billion as of October 31, 2025, with 56% expected to be recognized over the next 12 months.

Sentiment

Score: 4

Explanation: While Netskope demonstrated strong revenue growth and a positive shift in operating cash flow, the substantial increase in net loss and operating expenses, primarily driven by IPO-related stock-based compensation, indicates a challenging quarter from a profitability perspective. The successful IPO provides significant liquidity for future investments, but the immediate financial results are impacted by these one-time or accelerated expenses. The competitive landscape and corporate governance structure also present ongoing considerations.

Positives

• Strong revenue growth of 33% for the quarter and 32% for the nine-month period, driven by new customer acquisition and expansion within existing customers.
• High Dollar-Based Net Retention Rate (NRR) of 118% as of October 31, 2025, indicating strong customer loyalty and increased spending from existing customers.
• Successful completion of an Initial Public Offering (IPO) in September 2025, generating approximately $992.2 million in net proceeds, significantly enhancing liquidity.
• Shift to positive net cash provided by operating activities of $19.950 million for the nine months ended October 31, 2025, a substantial improvement from negative operating cash flow in the prior year.
• Gross margin for the nine months ended October 31, 2025, improved to 66% from 64% in the prior year, reflecting faster revenue growth and improved operational efficiencies.
• Achieved U.S. Federal Risk and Authorization Management Program (FedRAMP) High Authorization, opening up opportunities in the U.S. federal government market.
• Continued significant investment in Research and Development and Sales and Marketing, signaling a commitment to innovation and market expansion.

Negatives

• Net loss for the three months ended October 31, 2025, significantly increased to $(453.075) million, primarily due to IPO-related stock-based compensation expense.
• Gross margin for the three months ended October 31, 2025, decreased to 58% from 66% in the prior year, mainly due to the significant increase in stock-based compensation expense.
• Total operating expenses for the three months ended October 31, 2025, increased by 301% year-over-year, largely driven by $410.472 million in stock-based compensation expense.
• Accumulated deficit reached $2.6 billion as of October 31, 2025, reflecting a history of operating losses.
• Loss on changes in fair value of convertible notes increased by $22.6 million for the nine months ended October 31, 2025.
• The multi-class common stock structure concentrates voting control with holders of Class B common stock, limiting the influence of Class A common stockholders.

Risks

• The company has a history of losses, anticipates increases in operating expenses, and may not achieve or sustain profitability.
• Rapid growth rates in recent periods may not be indicative of future growth, and the revenue growth rate is expected to decline in the future.
• Future revenues and operating results will be harmed if the company is unable to acquire new customers, if customers do not renew arrangements, or if sales to existing customers cannot be expanded.
• The market for security, networking, and analytics is rapidly evolving, and if it does not grow as anticipated, the company's business and results of operations may be adversely affected.
• Business and growth depend on the success of relationships with the partner ecosystem; failure to maintain or develop these relationships could materially and adversely impact results.
• 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 may prevent the company from adding new customers or increasing sales to existing customers.
• The sales cycle is long and unpredictable, requiring considerable time and expense without guaranteed sales.
• International operations expose the company to significant risks, including political, economic, regulatory, and currency fluctuation uncertainties.
• Failure to obtain, maintain, protect, defend, or adequately enforce intellectual property or proprietary rights could impair the competitive position and lead to costly litigation.
• The use of Artificial Intelligence (AI) and Machine Learning (ML) may not be successful and presents business, compliance, and reputational challenges.
• Actual or perceived breaches of internal networks, systems, or data could damage the company's reputation and negatively impact financial results.
• The actual or perceived failure of the platform and products to block malware or prevent a security breach could harm the company's reputation.
• Inability to satisfy data protection, security, privacy, and other governmentand industry-specific requirements or regulations could harm the business.
• Servicing substantial indebtedness (Convertible Notes) may require significant cash, and the company may not have sufficient cash flow or ability to raise funds to satisfy obligations.
• The multi-class structure of common stock concentrates voting control with Class B common stock holders, limiting the ability of Class A holders to influence corporate matters.
• The effect of the multi-class structure on the trading price of Class A common stock cannot be predicted and may lead to lower or more volatile prices.
• Reliance on a limited number of global vendors and suppliers for certain equipment, software, and services exposes the company to supply chain disruptions and increased costs.
• Adverse economic conditions or reduced security, networking, or analytics spending may adversely impact revenue and profitability.
• Customer satisfaction depends on the quality of customer support; failure to maintain high quality could adversely affect the business.
• Success depends on the experience and expertise of the senior management team and key employees; inability to hire, retain, train, and motivate personnel could harm the business.
• Limited experience with pricing models; changes in subscription or pricing models could adversely affect the business.
• Failure to meet service level commitments under customer contracts could obligate the company to provide credits and harm the business.
• Future growth depends on sales to government entities, which are subject to specific challenges and risks, including compliance with FedRAMP.
• Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert management attention, disrupt business, and dilute stockholder value.
• Risks associated with operations in India and Taiwan, including increasing wage costs, intense competition for talent, and regional economic/political instability.
• If estimates or judgments relating to critical accounting policies prove incorrect, or financial reporting standards change, operating results could be adversely affected.
• Reliance on third parties for essential financial and operational services; a failure or disruption could materially and adversely affect business management.
• Tracking of business and operational metrics is subject to inherent measurement challenges, and inaccuracies may harm reputation and stock price.
• Estimated market opportunity and forecasts of market growth may prove inaccurate.
• Exposure to fluctuations in currency exchange rates could negatively affect results of operations.
• Exposure to the credit and liquidity risk of customers, particularly in weakened markets, could result in material losses.
• Claims by others that the company infringes their proprietary technology or other rights, or other lawsuits, could result in significant costs.
• Use of 'open source' software could negatively affect the ability to sell the platform and subject the company to possible litigation.
• Indemnity provisions in various agreements potentially expose the company to substantial liability for intellectual property infringement and other losses.
• Regulatory and legislative developments related to the use of AI and ML could adversely affect the use of such technologies and the business.
• Risks associated with the potential growth of the business within certain heavily regulated industry verticals (e.g., financial services, healthcare).
• Subject to anti-corruption, anti-bribery, and similar laws; noncompliance can subject the company to criminal penalties or significant fines.
• Subject to governmental export and import controls and trade and economic sanctions that could impair the ability to compete internationally.
• Subject to the tax laws of various jurisdictions, and could be obligated to pay additional taxes.
• Ability to use net operating loss carryforwards and certain other tax attributes may be limited.
• Taxing authorities may successfully assert that the company should have collected sales and use, value added, or similar taxes, leading to liability.
• The market price of Class A common stock may be volatile, and stockholders could lose all or part of their investment.
• Requirements of being a public company may strain resources, increase costs, and distract management.
• Failure to achieve and maintain an effective system of disclosure controls and internal control over financial reporting could adversely affect financial position and lower stock price.
• Management team has limited experience managing a public company.
• Business could be impacted by actions of activist shareholders or others.
• 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.
• The company may need additional capital, and financing may not be available on favorable terms, or at all.
• As an 'emerging growth company,' reduced disclosure requirements may make Class A common stock less attractive to investors.
• The company does not intend to pay dividends in the foreseeable future; investment return depends on stock price appreciation.
• Delaware law and provisions in the amended and restated certificate of incorporation and bylaws could make a merger, tender offer, or proxy contest difficult.
• Exclusive forum provisions in bylaws could limit stockholders' ability to obtain a favorable judicial forum for disputes.
• The company may issue preferred stock whose terms could adversely affect the voting power or value of Class A common stock.
• Involvement in litigation may materially and adversely affect the company.
• Business is subject to risks of natural catastrophic events and man-made problems.

Future Outlook

The company expects operating expenses to increase in the near-term due to continued investments in sales, marketing, new markets, technology, and costs associated with being a public company. Despite potential future operating losses, management anticipates continued improvement in operating cash flow over the long term. Non-GAAP gross margin and operating margin are also expected to improve over the long term through operational efficiencies and scale benefits. However, the revenue growth rate is projected to decline in the future due to various factors, including business maturation, and the growth rate of billings and deferred revenues may also decline or even be negative in certain quarters due to a shift to annual billing of multi-year contracts. Existing cash, cash equivalents, and marketable securities are believed to be sufficient to cover working capital and capital expenditure requirements for at least the next 12 months.

Management Comments

• "We are redefining security and networking for the era of cloud and AI."
• "We built Netskope One, our unified, cloud-native platform from the ground up to solve the challenge of securing and accelerating the digital interactions of enterprises in this new era."
• "Organizations rely on our Netskope One platform to provide profound contextual intelligence into their data and digital interactions, securing them with precision, without sacrificing the digital experience."
• "We leverage our patented technologies to enable dynamic, granular context-aware policies that allow us to protect sensitive data, stop threats, support regulatory compliance, and elevate the digital experience."
• "We believe that the pace of modernization will continue to accelerate, reinforcing the demand for our platform."
• "We plan to continue investing in the expansion of our salesforce and channel partners to pursue attractive growth opportunities both domestically and internationally."
• "We plan to continue investing in research and development to drive rapid innovation, leveraging our core platform to serve our customers' needs and further strengthen our technology leadership."
• "We expect the level of investment [in NewEdge network] as a percentage of revenue to decrease over the long term as we realize the benefits of scale and operating leverage from previous investments we have made."
• "We anticipate research and development expenses to decrease as a percentage of our total revenue over the long term although our research and development expenses may fluctuate as a percentage of revenue from period to period depending on the timing of these expenses."
• "We expect our general and administrative expenses will increase in dollar amount to support our growth, but over the long term, we expect our general and administrative expenses as a percentage of revenue to decrease."
• "We anticipate continued improvement [in operating cash flow] over the long term."
• "We believe that our existing cash, cash equivalents, and marketable securities will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months."

Industry Context

Netskope operates in the rapidly evolving cybersecurity market, specifically focusing on security, networking, and analytics solutions for the cloud and AI era. The company positions its Netskope One platform as a unified, cloud-native solution addressing the limitations of traditional security and networking in a world of dispersed users, diverse applications, and AI agents. The industry is characterized by constant technological change, intense competition from established players like Broadcom, Cisco, Fortinet, Palo Alto Networks, and Zscaler, and emerging companies. Broader trends such as digital transformation, hybrid/remote work models, and the increasing sophistication of cyber threats are driving demand for advanced security solutions, while also presenting challenges related to data protection, privacy regulations, and the ethical implications of AI/ML technologies.

Comparison to Industry Standards

• The company faces intense competition from larger, well-established companies such as Broadcom, Cisco, Fortinet, Palo Alto Networks, and Zscaler, which often possess greater name recognition, larger customer bases, and more extensive financial and marketing resources.
• Many competitors have broader and more diverse product and service offerings, allowing them to leverage existing relationships or bundle products, potentially making it harder for Netskope to compete on pricing or market share.
• The filing highlights that many competitors have 'substantially larger and more mature intellectual property rights portfolios,' which could be a disadvantage for Netskope in potential infringement claims.
• No specific quantitative benchmarks or direct comparative performance metrics against these named competitors are provided in the filing to assess Netskope's results against industry standards.

Corporate Governance

Legal Proceedings

• In the ordinary course of business, the company may be subject to various legal proceedings, lawsuits, disputes, or claims.
• The company is not currently subject to any legal proceedings that are likely to have a material adverse effect on its condensed consolidated financial statements.
• An accrual of approximately $0.3 million related to certain legal matters was recorded as of October 31, 2025.
• In 2022, the company filed for declaratory judgment in the Northern District of California in response to communications by Fortinet alleging patent infringement, and this litigation remains ongoing.

Stakeholder Impact

• **Shareholders (Class A):** Face potential dilution from future equity issuances and have limited influence on corporate matters due to the multi-class stock structure. The market price of their stock may be volatile.
• **Shareholders (Class B):** Retain concentrated voting control, significantly influencing corporate decisions.
• **Employees:** Benefited from significant stock-based compensation recognition due to IPO-related vesting. The company faces intense competition for skilled personnel and potential impacts on morale from workforce restructuring efforts.
• **Customers:** Benefit from continued investment in product innovation and global network expansion. However, they rely on high-quality customer support and may be impacted by service disruptions or evolving data protection and privacy regulations.
• **Suppliers/Vendors:** The company's reliance on a limited number of vendors for critical equipment, software, and services exposes it to supply chain risks, which could affect service delivery.
• **Creditors (Convertible Note Holders):** Hold substantial indebtedness, with future obligations for principal and accrued interest payments, potentially impacting the company's cash flow.

Next Steps

• Continue investing in the expansion of the salesforce and channel partners, both domestically and internationally.
• Continue investing in research and development to drive rapid innovation and strengthen technology leadership.
• Evaluate strategic acquisitions and investments in businesses and technologies to enhance product capabilities and enter adjacent markets.
• Manage the increasing complexity of business and operations, including expanding global workforce and geographic footprint.
• Address new and evolving laws, regulations, standards, and other obligations related to privacy, data protection, cybersecurity, and AI.
• Prepare for the effectiveness of ASU No. 2023-09 (Income Taxes) beginning February 1, 2026.
• Prepare for the effectiveness of ASU 2025-05 (Financial Instruments Credit Losses) beginning February 1, 2026.
• Prepare for the effectiveness of ASU 2024-03 (Expense Disaggregation Disclosures) beginning February 1, 2027.
• Settlement of RSUs to begin on January 1, 2026, and extend over a multi-day period.
• The first purchase period under the 2025 Employee Stock Purchase Plan (ESPP) ends on February 28, 2026.

Key Dates

Recommendation

Netskope demonstrates strong underlying business momentum with robust revenue growth (33% for the quarter, 32% for nine months) and an impressive Dollar-Based Net Retention Rate of 118%, indicating effective customer acquisition and expansion. The successful IPO significantly bolstered the company's cash position, providing ample liquidity for future strategic investments and operations. However, the substantial net loss for the quarter, primarily driven by IPO-related stock-based compensation, obscures the operational profitability and requires careful consideration. While these are largely non-cash expenses related to becoming a public company, they highlight the current lack of GAAP profitability. The company's market is highly competitive, and while it is investing heavily in R&D and sales, the long-term path to sustained GAAP profitability remains to be proven. The multi-class share structure also presents a corporate governance consideration for Class A shareholders. Given the strong growth but also the significant losses and competitive landscape, a 'Hold' recommendation is appropriate for investors to observe how the company leverages its new capital, manages its operating expenses post-IPO, and progresses towards profitability.

Keywords

Cybersecurity, SaaS, Cloud Security, Network Security, AI, Machine Learning, IPO, Financial Results, 10-Q, Netskope One, NewEdge Network, Dollar-Based Net Retention Rate, Convertible Notes, Stock-based Compensation, Corporate Governance, Risk Management, Enterprise Security, FedRAMP