Netskope Inc., a recent entrant in the cloud and AI security software space, saw its shares plummet nearly 20% in after-hours trading on Wednesday, erasing earlier session gains. The stock, which had closed up 2.6% at $12.40, slid to $9.96 shortly after 7 p.m. EDT, as investors zeroed in on concerning cash flow metrics and sales execution challenges.
The Santa Clara-based company, which went public at $19 per share in September, raising $908.2 million, now trades well below its IPO price. Despite reporting a 28% increase in quarterly revenue to $201.6 million and a narrower adjusted loss of $0.06 per share, compared to a loss of $0.28 a year earlier, the market focused on the company's negative free cash flow of $57.2 million, a stark reversal from the positive $17.5 million reported in the same period last year.
Net new annual recurring revenue (ARR), a key growth metric, came in at $34 million, down from $39 million in the prior-year quarter. This slowdown, coupled with the cash flow deterioration, overshadowed the headline revenue beat and a raised fiscal 2027 revenue forecast of $879 million to $883 million.
CEO Sanjay Beri attributed the demand surge to enterprises seeking to manage AI agents, sensitive data, and cloud traffic, stating, “This is the era that Netskope was built for.” He emphasized that the proliferation of AI within large companies expands the attack surface, creating more opportunities for cyber threats, which in turn drives demand for Netskope’s security solutions.
However, CFO Drew Del Matto acknowledged that sales execution remains a work in progress. During the earnings call, he noted that many sales representatives are still ramping up, and the shift to annual billing is delaying cash collections. He described the first quarter as the “low watermark” for this transition, but investors remained skeptical.
Adding to the uncertainty, Del Matto plans to retire once a successor is named, moving to an advisory role thereafter. This leadership change compounds the challenges for Netskope, which has yet to fully validate its post-IPO growth narrative.
Netskope competes in the secure access service edge (SASE) market, a segment of cloud security and networking tools. It faces stiff competition from larger, well-established players like Palo Alto Networks and Zscaler, both of which have extensive enterprise sales operations. The company recently launched the Netskope One AI Command Center, designed to help businesses identify AI assets, assess risks, and automate responses, as part of its push into AI security.
Despite the raised revenue guidance, the market’s reaction suggests that investors are waiting for tangible improvements in cash flow and ARR growth. If customer spending on AI security remains cautious, sales efficiency stays volatile, or cash flow recovery takes longer than expected, the higher revenue target may not be enough to stabilize the stock.
Netskope’s after-hours selloff underscores that, even with a top-line beat, the company is being judged on its ability to execute and generate cash. Revenue is climbing, but the market is demanding more concrete evidence of sustainable growth and profitability.