Netskope Inc. (NASDAQ:NTSK) announced its second quarter results on September 2. The cloud and AI-led security and networking company saw a 27% year-over-year jump in its annual recurring revenue that climbed to $899 million. Total revenue for the recent quarter came in at $220.5 million, equating to a 29% growth compared to the same period last year. The company surpassed management’s prior guidance across all metrics.
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Bull Case
The second quarter strength can be attributed to a robust demand for Netskope One platform. This was further supported by the company’s continued organic innovation. Netskope is currently positioned right at the convergence of AI, networking, security, and analytics, which makes strengthen its position as enterprises look for secure AI adoption. On the profitability front, the company reported gross profit of $169.1 million on adjusted basis, resulting in a marginal jump in adjusted gross margins to 77%, compared to 75% during the same period last year.
During the quarter, Netskope also introduced some new offerings and advanced features. These include the Netskope One DataSec Command Center, which is a unified platform for tracking and protecting sensitive data across endpoints, cloud, AI environments, and more. The company also brought enhancements to its NewEdge AI Fast Path capability, which, according to company testing, reduced latency by as much as 90% to popular AI destinations.
Following the second quarter, management issued guidance for the upcoming quarter, estimating topline figures between $227 million and $229 million. It has projected full-year revenue between $888 million and $892 million, along with adjusted gross margin of around 77% and a free cash flow margin of nearly 2%.
Bear Case
Despite outperforming across broader metrics relative to management’s prior guidance, the company continues to be a loss-making entity. Although numbers improved during the recent quarter, the adjusted loss from operations still stands at $(19.3) million, with adjusted operating margin recorded at (9)%. This led to adjusted net loss of $(0.03) per share.
Negative cash flow also remains a risk for the business. Net cash used in operating activities amounted to almost $(16.5) million during the quarter, while the free cash flow for the period came in at $(29.8) million. The company ended the quarter with approximately $1.1 billion in cash, cash equivalents, and marketable securities, down from roughly $1.16 billion as of January 31, 2026.
Institutional Sentiment
Based on data tracked across 1,000+ hedge funds by Insider Monkey, number of smart-money managers with long-term exposure in the stock has been going up. A total of 35 hedge funds held positions by the end of Q2 2026, compared to 31 in Q1 2026. Short interest stood at approximately 4.7% of the float as of August 14, which shows that investors are not carrying out too many speculative bets against the stock.
ICONIQ Capital is the largest institutional stakeholder, as per Yahoo Finance database, holding 66.27 million shares as of June 30. This amounts to 24.81% of the outstanding shares. Other notable institutional investors include BlackRock and Canada Pension Plan Investment Board, holding 3.48% and 3.35% of outstanding shares respectively.
Way Forward
The management remains focused on curtailing its ongoing losses, and capitalizing on the projected growth in Netskope’s total addressable market. The company estimates that its existing market opportunity, valued at $75 billion in 2024, could grow at around a 17% CAGR through 2029, while AI security could add more than $170 billion in opportunity. This reflects on key enablers for AI security in the coming future, and also underpins the segment’s strategic significance for Netskope.
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