10-K: Netskope's 2026 Annual Report: Growth Amidst Rising Costs

Netskope reports significant revenue growth and improved gross margin in fiscal 2026, driven by customer expansion, but continues to incur substantial net losses and increased operating expenses.

Summary

• Revenue for fiscal year 2026 increased by 32% to $709.0 million, up from $538.3 million in fiscal 2025.
• The company reported a net loss of $679.4 million in fiscal 2026, a significant increase from $354.5 million in fiscal 2025, contributing to an accumulated deficit of $2.6 billion.
• Gross margin improved to 68% in fiscal 2026, compared to 65% in fiscal 2025, reflecting improved operational efficiencies.
• Total operating expenses surged by 88% to $1,135.2 million in fiscal 2026, primarily due to $516.2 million in stock-based compensation expense, largely triggered by the IPO.
• Customer count grew by 21% year-over-year to 4,733 customers as of January 31, 2026.
• Customers with Annual Recurring Revenue (ARR) over $100,000 increased by 22% to 1,531, representing 86% of total ARR.
• The dollar-based net retention rate (NRR) was 116% as of January 31, 2026, up from 113% in the prior year.
• The company completed its Initial Public Offering (IPO) in September 2025, raising approximately $992.2 million in net proceeds.
• As of January 31, 2026, liquidity included $1.2 billion in cash, cash equivalents, and marketable securities.
• Convertible Notes had an aggregate principal and accrued interest of $528.8 million as of January 31, 2026, convertible into 22,136,005 shares of Class B common stock.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a mixed filing. While strong revenue growth and improved gross margins are positive, the significant increase in net losses due to high operating expenses, particularly stock-based compensation post-IPO, raises concerns about near-term profitability and efficient capital deployment.

Positives

• Achieved strong revenue growth of 32% year-over-year, reaching $709.0 million in fiscal 2026.
• Improved gross margin to 68% in fiscal 2026 from 65% in fiscal 2025, indicating better cost management relative to revenue.
• Demonstrated significant customer acquisition, with a 21% year-over-year increase to 4,733 customers.
• Maintained a healthy dollar-based net retention rate (NRR) of 116%, showing strong customer loyalty and expansion within the existing base.
• Experienced substantial growth in high-value customers, with those having ARR over $100,000 increasing by 22% year-over-year.
• Successfully completed an IPO in September 2025, securing $992.2 million in net proceeds, significantly bolstering the company's cash position.
• Generated positive operating cash flow of $38.1 million in fiscal 2026, a notable improvement from negative cash flows in prior periods.
• Maintained a strong liquidity position with $1.2 billion in cash, cash equivalents, and marketable securities as of January 31, 2026.
• Continued strategic investments in research and development to drive innovation and expand the global NewEdge network.
• Achieved FedRAMP High Authorization, opening new opportunities in the U.S. federal government market.

Negatives

• Reported a substantial net loss of $679.4 million in fiscal 2026, a significant increase from $354.5 million in fiscal 2025, indicating worsening profitability.
• Accumulated deficit reached $2.6 billion as of January 31, 2026, reflecting a history of unprofitability.
• Operating expenses increased by 88% in fiscal 2026, largely driven by $516.2 million in stock-based compensation expense related to the IPO, outpacing revenue growth.
• Incurred a loss of $34.3 million on changes in the fair value of convertible notes in fiscal 2026.
• Anticipates that the revenue growth rate will decline in future periods.
• The sales cycle for products is long and unpredictable, requiring considerable time and expense without guaranteed sales.
• Relies on a limited number of global vendors and suppliers for critical equipment and services, posing supply chain risks and potential cost increases.
• Exposed to fluctuations in currency exchange rates, which could negatively affect operating results.
• The multi-class common stock structure concentrates voting control with Class B holders, limiting the influence of Class A stockholders.
• Does not intend to pay dividends in the foreseeable future, meaning investor returns depend solely on stock price appreciation.

Risks

• A history of net losses and anticipated increases in operating expenses mean the company 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.
• Inability to acquire new customers, retain existing customers, or expand sales to existing customers would harm future revenues and operating results.
• The market for security, networking, and analytics may not grow as expected, or customer adoption of cloud-based solutions may be slower than anticipated.
• Dependence on a partner ecosystem means failure to maintain or develop these relationships could materially and adversely affect the business.
• Operating results may fluctuate significantly due to various factors, making future results difficult to predict.
• Failure to effectively develop and expand sales and marketing capabilities could hinder customer acquisition and sales growth.
• The sales cycle is long and unpredictable, especially for large enterprises and government entities, requiring considerable time and expense without guaranteed sales.
• International operations expose the company to significant risks, including political, economic, social uncertainty, and foreign currency fluctuations.
• Reliance on a limited number of global vendors and suppliers for equipment, software, and services could lead to disruptions or increased costs.
• Adverse economic conditions or reduced spending on security, networking, or analytics could negatively impact revenue and profitability.
• Failure to maintain high-quality customer support could adversely affect customer satisfaction and retention.
• Success depends on the experience and expertise of senior management and key employees, particularly the co-founder and CEO, Sanjay Beri; difficulty in hiring, retaining, training, and motivating personnel could harm the business.
• Limited experience with pricing models and potential changes in subscription or pricing models could adversely affect financial results.
• Failure to meet service level commitments under customer contracts could lead to financial liabilities and reputational harm.
• Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert management attention, disrupt business, or dilute stockholder value.
• Operations in India and Taiwan present risks such as increasing wage costs, intense competition for skilled professionals, and regional economic/geopolitical instability.
• Incorrect estimates or judgments relating to critical accounting policies, or changes in financial reporting standards, could adversely affect operating results.
• Reliance on third parties for essential financial and operational services means a failure or disruption in these services could materially and adversely affect business management.
• Tracking of business and operational metrics is subject to inherent measurement challenges, and inaccuracies could harm reputation and stock price.
• Estimated market opportunity and growth forecasts may prove to be inaccurate, and the company may not capture a significant portion of the market.
• Exposure to the credit and liquidity risk of customers, particularly in weakened markets, could result in material losses.
• Failure to obtain, maintain, protect, defend, or adequately enforce intellectual property or proprietary rights could impair competitive position and lead to costly litigation.
• The use of AI and ML, and their integration into the platform, may not be successful and could present business, compliance, and reputational challenges.
• Inability to introduce new security, networking, and analytics products, features, and functionality due to inadequate research and development resources could harm competitiveness.
• Damage or failure of the global network of data centers (NewEdge network) could negatively impact platform delivery and performance.
• Breaches or perceived breaches of internal networks, systems, or data, or the failure of products to block malware, could damage reputation and negatively impact financial results.
• Interruptions, outages, or other disruptions affecting the delivery or use of the platform, or third-party cloud-based systems, may adversely affect business.
• Incorrect or improper implementation or use of the platform and products by customers could result in dissatisfaction and harm the business.
• Failure of the platform and products to interoperate with customers' systems and security infrastructure or with third-party products could reduce competitiveness.
• Inability to maintain third-party licensed software and cloud services, or issues with such software/services, could result in increased costs or reduced service levels.
• Claims by others that the company infringes their proprietary technology or other rights, or other lawsuits, could result in significant costs and harm the business.
• Incorporation 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.
• Inability to satisfy data protection, security, privacy, and other governmentand industry-specific requirements or regulations could harm the business.
• 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 heavily regulated industry verticals (e.g., financial services, healthcare).
• 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 the ability to compete in international markets.
• Subject to the tax laws of various jurisdictions, with the potential for obligations to pay additional taxes.
• The 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 for past or future sales.
• Servicing substantial indebtedness, including Convertible Notes, may require a significant amount of cash, and sufficient cash flow or funds may not be available.
• The market price of Class A common stock may be volatile, leading to potential loss of investment.
• The 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 stock price.
• The management team has limited experience managing a public company, potentially impacting efficiency and compliance.
• The business could be impacted by actions from activist shareholders or others.
• 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.
• The effect of the multi-class structure on the trading price of Class A common stock cannot be predicted and may be negative.
• If industry or financial analysts do not publish research or issue inaccurate/unfavorable research, or change recommendations adversely, the 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.
• Delaware law and provisions in the amended and restated certificate of incorporation and bylaws could make a merger, tender offer, or proxy contest difficult, depressing the market price of Class A common stock.
• Exclusive forum provisions 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 could materially and adversely affect the company.
• The business is subject to risks from natural catastrophic events and man-made problems such as power disruptions, computer viruses, acts of war, and terrorism.

Future Outlook

The company anticipates continued increases in operating expenses in the near-term due to ongoing investments in expanding its sales force, marketing efforts, new markets, and technology architecture, as well as costs associated with operating as a public company. The revenue growth rate is expected to decline in the future. However, the company expects non-GAAP gross margin, non-GAAP operating margin, and free cash flow to improve over the long term, though not necessarily in a linear fashion. Netskope plans to continue investing in research and development to drive innovation and will evaluate strategic acquisitions and investments to enhance product capabilities and accelerate market entry.

Management Comments

• "We are redefining security and networking for the era of cloud and artificial intelligence ('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."
• "We believe that as enterprises undergo digital transformation, they increasingly rely on advanced technologies such as AI to gain granular visibility and control over information flows."
• "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

StockSavvy.ai notes that Netskope's strategic emphasis on a unified, cloud-native platform for security, networking, and AI directly addresses the industry's ongoing shift from traditional, appliance-based solutions to more agile, cloud-delivered services. The company's focus on profound contextual intelligence and real-time control for cloud and AI usage positions it well within the evolving cybersecurity landscape, where enterprises are grappling with an expanding attack surface and the complexities of hybrid work environments. The NewEdge global private cloud network, with its extensive footprint, is a direct competitive play against established Secure Access Service Edge (SASE) providers like Zscaler, aiming to deliver advanced security capabilities closer to the end-user for optimized performance. Netskope's significant investment in AI and Machine Learning (SkopeAI) reflects a broader industry trend where AI is becoming foundational for advanced threat detection, data classification, and automating security operations, indicating a commitment to staying at the forefront of technological innovation in a highly competitive market.

Comparison to Industry Standards

• Netskope's Dollar-Based Net Retention Rate (NRR) of 116% is strong and competitive within the SaaS and cybersecurity sectors, often indicating effective customer engagement and successful upsell/cross-sell strategies, comparable to high-growth SaaS companies like CrowdStrike or Okta in their expansion phases.
• The reported gross margin of 68% for fiscal 2026, an improvement from 65%, is a healthy indicator for a cloud-based security provider, though it may be slightly lower than some more mature, highly optimized SaaS companies that can achieve gross margins in the 70-80% range.
• The substantial net loss of $679.4 million and accumulated deficit of $2.6 billion are characteristic of high-growth technology companies that prioritize market expansion and R&D investment over immediate profitability, similar to the growth trajectories observed in companies like Palo Alto Networks or Zscaler during their aggressive expansion periods, but it highlights a continued need for significant capital deployment.
• The company's global NewEdge network, with over 125 full-compute edge data centers in 80 regions, is a significant infrastructure investment that directly competes with the global footprints of leading SASE providers such as Zscaler and Broadcom (Symantec Enterprise), aiming to deliver superior performance and localized security services.

Corporate Governance

Legal Proceedings

• The company is involved in various legal proceedings incidental to the ordinary course of business, including patent, commercial, product liability, employment, class action, whistleblower, and regulatory investigations.
• No pending or threatened legal proceedings are believed to have a material adverse effect on the consolidated financial statements.
• In 2022, the company filed for declaratory judgment in response to communications from Fortinet alleging infringement of certain patents, with these proceedings and related litigation remaining ongoing.

Related Party Transactions

• Sanjay Beri, the co-founder and Chief Executive Officer, is party to a voting agreement with one of the company's co-founders, covering 2.1% of the voting power of outstanding capital stock as of January 31, 2026. The company is not a party to this agreement.

Stakeholder Impact

• **Shareholders**: Class A common stockholders face potential dilution from future equity raises and have limited influence on corporate matters due to the multi-class voting structure. The stock price may be volatile, and no dividends are anticipated in the foreseeable future.
• **Employees**: Equity incentive plans are in place to attract, retain, and reward personnel. Workforce restructurings or reductions could negatively impact employee morale. Mandatory cybersecurity and privacy training is required.
• **Customers**: Benefit from a unified, cloud-native security platform designed to accelerate and secure cloud and AI adoption. However, they face risks of dissatisfaction from improper implementation, service disruptions, or product failures. Increased costs due to inflation could also impact them.
• **Suppliers/Vendors**: The company's reliance on a limited number of global vendors for critical equipment and services exposes these suppliers to the company's demand fluctuations and exposes the company to supply chain risks.
• **Creditors**: Holders of Convertible Notes have substantial indebtedness, with specific repayment, conversion, and repurchase terms that could impact the company's cash flows and financial flexibility.

Next Steps

• Continue investing in the expansion of the salesforce and channel partners both domestically and internationally.
• Further penetrate the U.S. federal government market following the achievement of FedRAMP High Authorization.
• Continue investing in research and development to drive rapid innovation and strengthen technology leadership.
• Evaluate strategic acquisitions and investments in businesses and technologies that enhance product capabilities, allow entry into adjacent markets, and accelerate time to market.
• File a definitive proxy statement for the 2026 annual meeting of stockholders with the SEC within 120 days after January 31, 2026.
• Provide an annual management report on the effectiveness of internal control over financial reporting commencing with the second annual report on Form 10-K.

Key Dates

Recommendation

Netskope demonstrates strong revenue growth and improving gross margins, indicating solid market traction for its cloud and AI security platform. However, the significant increase in net losses and accumulated deficit, largely due to substantial stock-based compensation post-IPO and ongoing investments, suggests a continued focus on growth over near-term profitability. The multi-class stock structure and potential for future dilution from capital raises are notable considerations for Class A shareholders. Given the strong market position and growth potential balanced against the current unprofitability and governance structure, a 'hold' recommendation is appropriate for investors to monitor the company's path to sustainable profitability and the impact of its concentrated voting power.

Keywords

Cybersecurity, Cloud Security, AI Security, SASE, ZTNA, DLP, SWG, CASB, Netskope One, NewEdge, Network Security, Data Protection, Enterprise Security, SaaS Security, Digital Experience Management, IPO, 10-K, Software-as-a-Service