Netskope posts 29% revenue growth as ARR approaches $900m
Netskope (NASDAQ: NTSK) reported second-quarter fiscal 2027 revenue of $220.5 million, a 29% increase year-on-year, as annual recurring revenue grew 27% to $899 million as of 31 July 2026. The Santa Clara-based security and networking vendor said results exceeded internal guidance across every metric, driven by demand for its Netskope One platform spanning security, networking, analytics and AI workloads.
GAAP gross margin widened two percentage points to 74%, while non-GAAP gross margin reached 77%. The GAAP operating loss deepened to $89.8 million from $46.0 million a year earlier, partly reflecting a sharp increase in stock-based compensation following the company's IPO. On a non-GAAP basis, however, the operating loss narrowed significantly to $19.3 million from $34.0 million, indicating improving underlying unit economics as the revenue base scales. Netskope held $1.1 billion in cash, equivalents and marketable securities at the quarter's close.
Product and partnership developments
Alongside the financial results, Netskope announced several product and alliance moves. The company joined NVIDIA's Open Secure AI Alliance, a coalition focused on building open, auditable AI security tooling. It also launched the Netskope One DataSec Command Center, described as a unified control plane for tracking and protecting sensitive data across AI environments, cloud, network, endpoints and email.
The company also advanced its NewEdge AI Fast Path capability, which optimises network routing between users and AI service destinations. The release states the feature reduced latency by as much as 90% to popular AI destinations, though Netskope did not provide third-party-verified benchmark data to support the figure, and the conditions under which the measurement was taken were not specified.
On the analyst recognition side, Netskope was named a Leader in the Gartner Magic Quadrant for SASE Platforms for the third consecutive year, positioned highest in Ability to Execute. It was also named a Leader in the Gartner Magic Quadrant for Security Service Edge for the fifth year running, a record that spans every year since that report's inception.
Market context and competitive positioning
The SASE market is one of the most intensely contested segments in enterprise security. Netskope competes directly against Palo Alto Networks, Zscaler, Cisco, and Fortinet, all of which have invested heavily in converging networking and security functions into single-vendor platforms. Hyperscalers including Microsoft and Google are also encroaching with bundled security capabilities tied to their identity and cloud-access products.
The enterprise appetite for AI security controls is emerging as a new front in this competition. As organisations deploy agentic AI workflows and expose large language models to sensitive corporate data, the demand for inline inspection, data-loss prevention and access governance specific to AI traffic is growing. Netskope's positioning at the intersection of cloud access and AI data flows is consistent with where several analysts expect near-term security budget to concentrate.
For the third quarter of FY2027, Netskope guided for revenue of $227 million to $229 million and a non-GAAP operating margin of approximately negative 8%. Full-year guidance was set at $888 million to $892 million in revenue, with a non-GAAP operating margin of approximately negative 9% and a free cash flow margin of approximately positive 2%, which would represent a meaningful step toward cash generation if achieved.
The path to profitability remains the key watchpoint for investors. Stock-based compensation totalled $63 million in the quarter alone, a figure that will continue to weigh on GAAP results as IPO-era equity awards vest. The guidance implies a free cash flow inflection by year-end; whether Netskope can sustain 25%-plus ARR growth while delivering that inflection will be the central question heading into the second half of the fiscal year.