NTSK · Research
Netskope Owns the Network Checkpoint but Staff and Venture Funds Keep the Gains
Netskope's traffic gate is real and growing near 30%, but stock pay takes a third of revenue and Class B holds 97.3% of votes.
- Cash left for shareholders after capex, software and all stock pay
- -$226.0M
- Stock pay as a share of revenue
- 32.9%
- Voting power held by Class B stock
- 97.3%
1. Our call: Avoid, because Netskope owns the network checkpoint but staff and venture funds keep the gains
Our call: Avoid. Netskope routes a company's web, cloud and app traffic through its own network, called NewEdge, and inspects it for threats and data leaks before it reaches its destination [1].
It sells this as a subscription platform, Netskope One, to large companies, including about a third of the Fortune 100 [1].
Revenue rose 29% to $220.5M in the second quarter of fiscal 2027, the three months to Jul 31, 2026 [3]. The full-year guide is $888M to $892M, against $709.0M in fiscal 2026, which ended Jan 31, 2026 [1][3].
We measure owner cash, the cash left for shareholders: operating cash flow, less capital expenditures, less capitalized software, less all stock pay. Over the six months to Jul 31, 2026 it was minus $226.0M, our calculation from the cash flow statement [3][9].
The company's own free cash flow measure, which leaves out stock pay, was minus $87.0M [3].
The question this piece answers is who owns the checkpoint when software agents, not just people, send traffic to cloud apps and models. Our answer is that Netskope does own a real checkpoint, but Class B holders control 97.3% of the votes and stock pay eats a third of revenue, so outside holders get little of it
2. Spending runs far ahead of revenue
| Metric | Value |
|---|---|
| R&D share of revenue | 49.2% GAAP, $207.5M on $422.1M, six months to Jul 31, 2026, our calculation [3]. 35% excluding stock pay, per the company [3] |
| GAAP operating margin | Minus 41% in the second quarter, against minus 27% a year earlier [3] |
| Stock pay share of revenue | 28.6% in the second quarter and 32.9% for the six months, our calculation [3]. 4.4% in the second quarter a year earlier, before the stock market listing [3] |
| API quality | 4 of 5, our scoring: the platform sits inline on traffic and exposes management and data controls that other security tools plug into [1] |
| Toll-gate score | 2 of 4 pass, 1 partial, 1 fail (section 2b) |
2b. Traffic has to pass through Netskope
A gate is valuable when traffic must pass through it and the owner can see and price what passes. Netskope's network does sit in the path between users, devices and agents on one side and cloud apps and models on the other [1][3].
| Test | Result | Evidence |
|---|---|---|
| Owns the record | Partial | Netskope classifies and tracks a customer's sensitive data across cloud, network, devices and email through its new DataSec Command Center [3]. But the data itself stays in customers' apps and stores [1]. |
| Owns the connection | Pass | Customers route web, cloud and private app traffic through Netskope's own NewEdge network, and its new Fast Path feature routes traffic from agents to model providers [1][3]. 1,531 customers paid over $100,000 a year at Jan 31, 2026, 86% of recurring revenue [1]. |
| Prices close to outcomes | Fail | Netskope sells subscriptions to its platform, and recurring revenue is the annualized value of those contracts, not usage or outcomes [3]. |
| R&D on the gate vs features | Pass | R&D was $207.5M in the six months, 49.2% of revenue, and the new releases are aimed at agent and model traffic and data control [3]. |
Two passes, one partial and one fail. The gate is real, but it is contested.
The 10-K names Broadcom, Cisco, Fortinet, Palo Alto Networks and Zscaler as primary competitors, all selling the same checkpoint [1].
3. Growth is fast and steady
Annual recurring revenue, the company's measure of active cloud subscriptions, was $899M at Jul 31, 2026, up 27% [3]. Remaining performance obligations were $1.4B, with 53% due within twelve months [2].
Third quarter guidance also calls for an operating margin before stock pay of about minus 8%, close to the second quarter [3]. Management says results beat its guidance on every metric in the second quarter [3].
The guide implies growth slowing from 32% to about 25% [1][3]. Third quarter guidance is $227M to $229M [3].
4. Big customers carry the business
Customers paying more than $100,000 a year rose 22% to 1,531 at Jan 31, 2026, and they produce 86% of recurring revenue [1]. The company sells to Major Accounts with 40,000 or more employees, Enterprises with 2,000 to 39,999, and Mid-Market accounts below that [1].
Netskope had 3,281 employees at Jan 31, 2026 [1]. Revenue for each employee was about $0.22M in fiscal 2026, our calculation [1].
Gartner named Netskope a Leader in its 2026 reports on Secure Access Service Edge and Security Service Edge, per the company [3]. Those are the two market labels for this checkpoint [3].
5. Margins improve only before stock pay
Gross margin rose to 74% in the second quarter from 72% [3]. The company's operating margin before stock pay improved to minus 9% from minus 20% [3].
On a GAAP basis, the operating loss doubled to $89.8M from $46.0M, because stock pay rose to $63.0M from $7.6M after the Sep 2025 listing [3]. The net loss was $110.8M, including a $26.5M loss from revaluing the convertible notes [3].
General and administrative cost rose to $45.1M from $18.3M, 20% of revenue, mostly from stock pay [3]. Sales and marketing was 48% of revenue [3].
6. Owners are losing cash at a high rate
| Period | Operating cash flow | Capex and software | Stock pay | Cash left for shareholders |
|---|---|---|---|---|
| Fiscal 2026 | $38.1M | $25.7M | $516.2M | Minus $503.8M, our calculation, including about $402.1M of listing-triggered stock pay [1][9] |
| Six months to Jul 31, 2025 | $8.7M | $10.9M | $17.6M | Minus $19.8M, our calculation [3] |
| Six months to Jul 31, 2026 | Minus $70.5M | $16.5M | $139.0M | Minus $226.0M, our calculation [3] |
| Second quarter fiscal 2027 | Minus $16.5M | $13.3M | $63.0M | Minus $92.8M, our calculation [3] |
The fiscal 2026 figure includes a one-time charge: $402.1M of stock pay was recognized in the third quarter of fiscal 2026 when restricted units vested on the stock market listing [1]. Even without it, the six months to Jul 31, 2026 show what holders gave up: $139.0M of stock pay on $422.1M of revenue [3].
The trend is improving. Stock pay fell to $63.0M in the second quarter from $76.0M in the first, our calculation, and the operating margin before stock pay improved 11 points from a year earlier [3][9].
If that pace holds, the gap closes, but slowly [3].
The company guides to a free cash flow margin of about 2% for fiscal 2027 [3]. That measure leaves out stock pay.
On our measure, which counts it, the year will be deeply negative [3]
7. Cash is ample, the notes are the hidden cost
Cash and marketable securities were $1.07B at Jul 31, 2026, our calculation, against convertible notes carried at $698.1M of fair value [3]. Netskope raised about $992.2M at its Sep 2025 listing [1].
The lenders are unnamed investors under note purchase agreements [1]. The 2028 notes, $401.0M issued in Dec 2022, carry 3.75% interest and the 2029 notes, $75.0M issued in Sep 2024, carry 3.00%; both can pay interest in cash or in more notes [2].
Both convert into Class B stock, about 22.1M shares, which would add about 7.8% of the votes [1]. Holders of the 2028 notes can ask for repurchase with a minimum return of 14.0% compounded quarterly, and on a takeover or other fundamental change they can demand 140% to 170% of principal [2].
There were no buybacks to speak of [9].
8. The main risks are competitors, dilution and control
Competitors: Palo Alto Networks, Zscaler, Fortinet, Cisco and Broadcom all sell the same checkpoint, several with larger customer bases [1].
Dilution: stock pay of 32.9% of revenue keeps adding shares, and the notes and the chief executive's awards add more [1][3][4].
Control: Class B shares carry 20 votes each against one for Class A, and held 97.3% of votes at Jan 31, 2026 [1]. Class B converts to Class A only on transfer, by a two-thirds Class B vote, or ten years after the listing, around Sep 2035 [1].
Finance: chief financial officer Drew Del Matto said on Jun 3, 2026 that he will retire once a successor starts [6]. No successor had been named in a filing by Oct 31, 2026 [2].
9. A young public company still in heavy investment
Netskope is in the scale-up stage. It listed in Sep 2025, revenue grows near 30%, and it still loses money on every measure that counts stock pay [1][3].
Sanjay Beri co-founded it in Oct 2012 and is still chief executive [4].
Three choices define this stage. The company kept R&D near half of revenue, it took on convertible debt before the listing, and it paid its chief executive with a large award tied to company value [2][3][4].
Other executives are paid well too. Chief revenue officer Raphael Bousquet earned $10.1M in fiscal 2026, paid in euros and dirhams, with a $0.03M housing allowance and school fees for his child [4].
Chief financial officer Del Matto earned $4.6M [4]. Janmohamed waived his director fees from the listing to Jan 31, 2026, and no outside director held equity awards at that date [4].
The test for this stage is whether stock pay falls below 20% of revenue while growth stays above 20%. If both happen, cash left for holders can turn positive; if not, it stays a growth story that holders fund
10. Agent traffic is the bull case and the competitive fight
The bull case is that agents and superintelligence tools multiply the traffic and data flows that must be inspected, and every one passes the checkpoint [3]. Netskope has built features aimed at that traffic and joined a security alliance led by NVIDIA that builds open tools for defenders [3].
The bear case is that the same traffic is the target of every large security vendor, and that pricing stays per seat while agents multiply [1]. A checkpoint that cannot charge per agent or per transaction gives the gains to customers [1].
The test is recurring revenue growth. If agent traffic matters, recurring revenue growth should hold above 25% through fiscal 2028 [3].
If it slows toward the low 20s, the gate is not pricing the new traffic [3].
11. Venture partners sit on the board and set the founder's pay
Sanjay Beri co-founded Netskope in 2012 and is chief executive and chairman; he previously ran Juniper Networks' access and security unit and co-founded Ingrian Networks [4]. He owns 15.3% of Class B, 14.3% of votes, and has a voting agreement with a non-executive co-founder for another 4.3% [4].
His fiscal 2026 pay was $234.5M, almost all a grant of 9.03M time-based units and 9.03M performance units, in exchange for cancelling a 2023 award [4]. The performance units vest in thirds when company value reaches $10B, $12.5B and $15B, and the time-based units fully vest on a change in control [4].
The company also paid his $0.11M antitrust filing fee and a $0.11M tax reimbursement on it [4].
The board has six members, and three are partners of the largest holders [4]. Arif Janmohamed is a Lightspeed Venture Partners partner, and Lightspeed holds 38.8% of Class B and 36.2% of votes [4].
Eric Wolford is an Accel partner, and Accel holds 17.8% of Class B and 16.6% of votes [4]. William Griffith is an ICONIQ partner, and ICONIQ holds 28.0% of Class A but only 1.9% of votes
12. The questions we would ask management, and the calls we are tracking
Question one: when will stock pay fall below 20% of revenue? [3]
Question two: who holds the convertible notes, and does any noteholder have a seat or other rights? [1][2]
Question three: why does the compensation committee include a partner of the holder with 36.2% of votes, when it set a $233.4M award for the founder? [4]
Question four: when will a new chief financial officer be named? [6]
Question five: will Netskope price the checkpoint per agent or per transaction, not only per seat? That answer sets our conviction.
Prediction one: fiscal 2027 revenue lands at $888M or higher, the bottom of the guide (80%). [3]
Prediction two: recurring revenue grows 25% or more year over year at Jan 31, 2027 (60%).
Bottom line: a real checkpoint that holders pay for
Netskope's revenue grew 29% in the second quarter and its network sits in the path of company and agent traffic [1][3]. But cash left for shareholders was minus $226.0M in six months, stock pay was 32.9% of revenue, and Class B holders led by Lightspeed, Accel and the founder control 97.3% of votes [1][3][4].
We would move to Hold off if stock pay falls below 20% of revenue with recurring revenue growth above 25%. A buyout bid, which would trigger note premiums and award acceleration, or pricing tied to agent traffic would also change our view.
Our call: Avoid, conviction 3 of 5.
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