Zscaler (ZS) shares traded modestly lower following its latest earnings release, even though the cybersecurity leader once again topped Wall Street’s expectations.
The company reported revenue of $719 million for its fiscal fourth quarter, up 21% from last year, while adjusted earnings came in at $0.89 per share—beating consensus estimates by more than 10%.
Annual recurring revenue (ARR) climbed 22% to surpass $3 billion, reflecting healthy demand for Zscaler’s cloud-native security solutions. Remaining performance obligations (RPO), a measure of future revenue under contract, jumped 31% to $5.8 billion. Despite these figures, investor enthusiasm cooled as earnings guidance for the next fiscal year landed in line with, rather than above, analyst forecasts—a rare move for a company known for conservative guidance followed by consistent beats.
AI, Zero Trust, and Data Security Driving Expansion
Zscaler continues to ride three powerful growth vectors: AI security, Zero Trust Everywhere, and Data Security Everywhere. Together, these segments now generate more than $1 billion in ARR. Demand is being fueled by enterprises racing to secure artificial intelligence applications, with Zscaler’s new AI Guard and GenAI security offerings seeing rapid adoption.
The company also rolled out its flexible licensing model, Z-Flex, which topped $100 million in total contract value bookings in the quarter, growing more than 50% sequentially. This program makes it easier for enterprises to adopt multiple Zscaler modules over time, boosting deal sizes and improving customer stickiness.
Meanwhile, the integration of Red Canary, acquired earlier this year, is enhancing Zscaler’s managed detection and response capabilities—broadening its platform and strengthening its position against both traditional firewalls and newer cloud competitors.
Zscaler continues to ride three powerful growth vectors: AI security, Zero Trust Everywhere, and Data Security Everywhere. Together, these segments now generate more than $1 billion in ARR. Demand is being fueled by enterprises racing to secure artificial intelligence applications, with Zscaler’s new AI Guard and GenAI security offerings seeing rapid adoption.
The company also rolled out its flexible licensing model, Z-Flex, which topped $100 million in total contract value bookings in the quarter, growing more than 50% sequentially. This program makes it easier for enterprises to adopt multiple Zscaler modules over time, boosting deal sizes and improving customer stickiness.
Meanwhile, the integration of Red Canary, acquired earlier this year, is enhancing Zscaler’s managed detection and response capabilities—broadening its platform and strengthening its position against both traditional firewalls and newer cloud competitors.
Outlook: High Growth, But Valuation Stays Premium
Looking ahead, Zscaler guided for fiscal 2026 revenue between $3.27 and $3.28 billion, representing 22–23% growth, and ARR of up to $3.7 billion, a 22% increase. Free cash flow margin is expected to rise to as much as 26.5%, underscoring the firm’s ability to grow while maintaining strong profitability.
Still, the stock faces two headwinds. First, at a market cap of roughly $43 billion, Zscaler trades at a steep premium to peers on a price-to-sales basis. Second, the company acknowledged that net new ARR will likely be back-weighted in fiscal 2026, hinting at potential seasonality in results.
Conclusion
Zscaler’s latest quarter reinforced the company’s strong fundamentals: steady 20%+ revenue growth, record operating margins, and deepening traction across AI and Zero Trust security. The muted stock reaction reflects elevated expectations rather than any weakness in execution. For long-term investors, Zscaler remains a high-quality growth story at the center of enterprise cloud security, though its premium valuation means the stock may be best suited for those with a tolerance for volatility.
Zscaler’s latest quarter reinforced the company’s strong fundamentals: steady 20%+ revenue growth, record operating margins, and deepening traction across AI and Zero Trust security. The muted stock reaction reflects elevated expectations rather than any weakness in execution. For long-term investors, Zscaler remains a high-quality growth story at the center of enterprise cloud security, though its premium valuation means the stock may be best suited for those with a tolerance for volatility.
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