Check Point Software Technologies Ltd. (CHKP) Q3 2026 earnings review
Check Point subscriptions grow 11%, but firewall hardware sales drop
Check Point's cloud security subscriptions kept growing, but a deeper slump in firewall hardware pulled total sales down. Total revenue slipped 1% from a year ago to $670 million as products and licenses fell 19%, though per-share profit excluding one-offs and last year's tax settlement edged up 1% on share buybacks and a $25 million Israeli research grant. Chief executive Nadav Zafrir said the recovery is taking longer than anticipated and promised only gradual improvement in the fourth quarter.
| Revenue | $669.8M -1.1% from a year ago (in line with plan) |
|---|---|
| Products and licenses sales | $105.5M -19.1% from a year ago (-14% in Q2) |
| Profit per share, excluding one-offs | $2.49 +1% from a year ago excluding 2025 tax benefit |
| Q4 revenue outlook | Softened "gradual improvement" vs +7% prior implied jump |
⚖️ Verdict: 🔴 Bearish
The story got worse because hardware demand deteriorated further and contract backlog growth slowed to 5%. By our math, the prior full-year plan required fourth-quarter sales to jump 7% to a record $798 million, a target that clashes with Zafrir's call for a gradual recovery. The bright spot: security subscriptions still grew 11% on demand for email and artificial intelligence protection.
The question now is whether the firewall slump comes from temporary sales-team turnover or customers defecting to rival hardware vendors. If internal disruption is to blame, delayed appliance deals will close in the fourth quarter and stabilise maintenance revenue; if rivals are winning share, hardware and support sales will keep shrinking. Fourth-quarter product revenue and the updated full-year outlook on the call will settle it.
🐂 Bull Case
Newer Cloud Tools Kept Subscription Growth at 11%
Check Point sells security subscriptions that add cloud and threat protection on top of its network firewalls. Chief executive Nadav Zafrir said subscription growth was "supported by strong demand for Email, CTEM, and AI Security" — tools that block phishing, track a company's digital weak spots, and protect artificial intelligence systems.
Security subscriptions revenue rose 10.9% from a year ago to $338.6 million in the third quarter, beating the $337.5 million middle of the company's prior outlook. Because subscriptions now make up 50.6% of total sales, up from 45.1% a year ago, their steady growth nearly offset the drop in hardware and maintenance.
What to watch: fourth-quarter subscription revenue against the $371.7 million implied by our math from the full-year plan. Hitting that 14.0% growth rate would show that delayed hardware deals with attached subscriptions finally closed.
Buybacks and Interest Income Kept EPS Positive
Check Point spends about $325 million every quarter buying back its own stock, funded by cash flow and a $4.12 billion cash pile that includes $1.8 billion raised from zero-interest convertible debt last year. In the third quarter, the Israeli cybersecurity company bought 2.5 million shares, cutting its diluted share count by 6.9% from a year ago to 101.9 million.
Combined with net interest income rising 44.6% to $41.5 million, the lower share count turned an 11.1% drop in operating profit excluding one-offs into a 1% gain in per-share profit excluding last year's $1.47 tax settlement. What to watch: fourth-quarter share count and net interest income, which will determine if per-share profit can reach the $2.91 implied by our math from the full-year target.
🐻 Bear Case
Appliance Slump Worsened and Dragged Down Maintenance
Check Point reorganized its sales team at the start of the year, and hardware firewall sales have fallen ever since. "The recovery is taking longer than anticipated, but we remain confident in our vision," chief executive Nadav Zafrir said.
Products and licenses revenue fell 19.1% from a year ago to $105.5 million, a deeper drop than the 14.0% decline in the second quarter and the 2.9% slip in the first. Because customers buy support contracts alongside new hardware, software updates and maintenance revenue also shrank faster, falling 6.6% to $225.7 million after a 3.3% drop last quarter.
This matters because hardware and maintenance still bring in half of Check Point's revenue. When fewer appliances ship, the company loses both the upfront hardware sale and the multi-year maintenance stream that follows.
What to watch: fourth-quarter products and licenses revenue against last year's $171.8 million. Management previously promised hardware growth would turn positive in the fourth quarter, and another decline would suggest customers are switching to rival firewalls rather than waiting on Check Point's sales reset.
Backlog Growth Slowed Despite Claims of Improving Indicators
"Our leading indicators are improving, which is encouraging, and we remain focused on driving sustainable growth," chief executive Nadav Zafrir said. He added that the cybersecurity group expects "gradual improvement beginning in the fourth quarter" after revenue fell 1.1% in the third.
The printed backlog numbers tell a weaker story. Remaining performance obligation (RPO) — the total value of signed customer contracts not yet booked as revenue — grew 5% from a year ago to $2.5 billion, slowing from 7% growth in the second quarter, 8% in the fourth quarter of 2025, and 9% a year ago. By our math, RPO also shrank by about $52 million from last quarter.
Furthermore, "gradual improvement" from a 1.1% revenue drop sits well below the 7.2% fourth-quarter jump (to $798.2 million) implied by our math from the full-year outlook Check Point held last quarter. What to watch: whether management cuts the $2,770–2,850 million full-year revenue target on the conference call, which would confirm that delayed third-quarter deals will not all close this year.
Operating Profit Fell Despite an Israeli Research Grant
Check Point has been hiring engineers and sales staff while acquiring smaller artificial intelligence and cloud security startups. Those investments are now squeezing profitability even with help from a new government subsidy.
- Operating margin excluding one-offs: 37.4%, down 4.2 percentage points from a year ago
- Cost of revenues: 14.6% of sales, up 1.6 percentage points
- Research and development excluding the $25 million Israeli tax grant: 22.0% of sales, up 4.6 percentage points by our math
Without the $25 million Israeli research grant, operating income excluding one-offs fell 19.9% from a year ago to $225.7 million by our math, rather than the reported 11.1% drop to $250.7 million. What to watch: fourth-quarter operating margin excluding one-offs, as Check Point adds the 300 sales hires it planned for the second half of the year.
Risks this quarter didn't answer
Several standing watch items and full-year outlook numbers do not appear in the third-quarter earnings release because Check Point typically shares them during the conference call.
- Quantitative fourth-quarter and full-year outlook: not in the release; the call presentation will show whether the $2,810 million full-year revenue midpoint still stands.
- Emerging-technology annual recurring revenue growth: reported at over 40% on prior calls, but not yet readable from the release.
- Sales hiring progress and 2027 margin impact: progress toward the 300 planned sales hires and their cost impact for next year require call commentary.
💲 Other KPIs
Cash generation rebounded to 38.5% of revenue after dipping to 23.9% in the second quarter. On the surface it more than tripled from $74.8 million a year ago, when Check Point paid $159.9 million for land for its new Tel Aviv campus. Excluding that land payment, cash flow rose 9.9% from a year ago by our math, beating the $250 million middle of the company's plan.
Deferred revenue — cash customers have paid upfront for software and support not yet delivered — fell $33.6 million from the second quarter and sits 8.7% below its December 2025 peak by our math. Calculated billings (revenue plus the quarterly change in deferred revenue) came to $636.2 million by our math, up 4.9% from a year ago after stalling in the second quarter.
The Israeli security vendor ended the quarter with $4.12 billion in cash, short-term deposits, and marketable securities, down $80.5 million from the second quarter as $325 million in share buybacks outpaced operating cash flow. Compared with a year ago, the cash pile is up $1.31 billion because the group raised $1.8 billion from convertible notes late last year.
🔮 Guidance
Cut in tone. Check Point gives dollar ranges on its conference call, but chief executive Nadav Zafrir said in the release that third-quarter revenue (-1.1% from a year ago) marked the bottom and the company expects "gradual improvement beginning in the fourth quarter" as the recovery is "taking longer than anticipated". By our math, the prior full-year plan required fourth-quarter revenue to jump 7.2% to a record $798.2 million.
❓ Key Questions
Did Check Point cut its full-year revenue outlook?
Hitting the prior $2,810 million full-year midpoint requires $798.2 million in the fourth quarter (+7.2% from a year ago) by our math, which clashes with management's new call for gradual improvement.
Are firewall customers switching to rival hardware vendors?
Products and licenses sales fell 19.1% from a year ago after dropping 14.0% last quarter, raising the risk that rival firewall makers are taking market share while Check Point reorganizes its sales force.
How fast did emerging-technology recurring revenue grow in Q3?
Management previously highlighted over 40% recurring revenue growth for email, exposure management, and AI security on its calls, and investors need the dollar base and growth rate to judge the cloud mix shift.
What will the 300 sales hires cost in 2027?
Operating margin excluding one-offs already fell 4.2 percentage points from a year ago to 37.4% despite a $25 million Israeli research grant, before the new sales hires are fully on the payroll.