Track market-moving stories before they get noisy

Key Takeaways Zscaler shares fell 0.6% in six months as major cybersecurity peers posted gains above 87%.Zscaler expects fiscal 2027 revenue and ARR growth of roughly 17%, down from 25% in fiscal 2026.Capital spending may reach the low teens of revenues in FY27, with free cash flow margins near 23%-23.5%. Zscaler, Inc. (ZS - Free Report) has struggled to keep pace with the broader cybersecurity sector. The stock has fallen 0.6% over the past six months, while the broader Zacks Security industry has gained 84.8%.

The performance gap becomes even more striking when compared with major peers, including Palo Alto Networks, Inc. (PANW - Free Report) , CrowdStrike Holdings, Inc. (CRWD - Free Report) and Fortinet, Inc. (FTNT - Free Report) . Palo Alto Networks, CrowdStrike and Fortinet have surged 103.5%, 93.4% and 87.3%, respectively, during the same period.

Zscaler 6-Month Price Return Performance
Image Source: Zacks Investment Research

This raises an important question for investors: Is Zscaler simply being overlooked, or is the weak stock performance signaling deeper problems

The numbers suggest the latter may be the bigger concern.

Zscaler’s Growth Story Is Losing MomentumZscaler's biggest problem is no longer its position in the cybersecurity market. It is the pace at which the business is growing.

For years, Zscaler was known for delivering revenue growth above 40%. That growth rate has steadily declined. In the fourth quarter of fiscal 2026 and for the full fiscal year, revenues increased 25% year over year. Annual recurring revenues (ARR) also rose 25% to $3.77 billion at the end of the fourth quarter.

While 25% growth is still respectable, it is a major slowdown for a company once viewed as one of the fastest-growing cybersecurity stocks.

ZS expects growth to weaken further in fiscal 2027. Zscaler is projecting roughly 17% growth in both revenues and ARR. Management has pointed to several reasons for the weaker outlook, including changes in sales leadership and execution uncertainties surrounding new product integrations.

The Zacks Consensus Estimate for fiscal 2027 revenue growth is in line with management’s guidance and points to another slowdown in fiscal 2028, with revenues expected to increase only 15.7%.

Zscaler Sales Estimates
Image Source: Zacks Investment Research

ZS’ Rising Spending Is Another Major ConcernZscaler is also spending more to support its long-term growth plans. The rapid adoption of artificial intelligence (AI) is creating new opportunities for cybersecurity companies. However, AI workloads also require more computing, memory, storage and networking capacity. Rising infrastructure costs are putting additional pressure on Zscaler's spending.

Capital expenditures accounted for 8.3% of fiscal 2026 revenues, up from 6.1% in fiscal 2025. Management expects capital spending to remain elevated in fiscal 2027 and potentially reach the low-teens percentage of revenues.

Higher investment can be justified when it leads to faster growth. The problem for Zscaler is that spending is rising, while revenue and ARR growth are expected to slow.

Free cash flow also reflects this pressure. Zscaler's free cash flow margin declined to 23% in fiscal 2026 from 27% in fiscal 2025. Management expects the margin to remain around 23%-23.5% in fiscal 2027.

Macroeconomic uncertainty, tariffs and geopolitical tensions add to the near-term risks. These factors could keep customers cautious about technology spending and make it harder for Zscaler to regain its previous growth rate.

Zscaler’s Cheap Valuation Could Be a TrapZscaler looks cheap compared with other cybersecurity stocks. The company currently trades at around 6.63 times forward 12-month sales, well below the 17.05 times for the broader Zacks Security industry.

Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research

The discount is even more noticeable compared with major cybersecurity peers like Fortinet, Palo Alto Networks and CrowdStrike. Fortinet trades at 13.19 times forward 12-month sales, Palo Alto Networks at 19.16 times and CrowdStrike at 31.63 times.

At first glance, this valuation gap looks like a bargain for a high-quality cybersecurity stock.

However, a low valuation does not automatically make a stock attractive. Investors often pay higher multiples for companies that can deliver stronger and more consistent growth. But Zscaler's growth continues to slow, which justifies its low valuation.

In other words, ZS stock is cheap because investors are already pricing in a weaker growth outlook.

Final Thoughts: Exit ZS Stock for NowZscaler remains a major cybersecurity company with significant long-term opportunities, particularly as AI and cloud adoption create new security challenges. However, the stock's current investment case is difficult to defend.

The company is facing slowing revenue and ARR growth, rising capital spending and weaker free-cash-flow margins. At the same time, Palo Alto Networks, CrowdStrike and Fortinet are delivering much stronger stock returns.

Zscaler’s discounted valuation is attractive on the surface, but it is not enough to offset the deterioration in growth. It is wise to exit Zscaler stock for now and wait for clearer evidence that growth is stabilizing.

Zscaler currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Key Takeaways Z-Flex generated over $770 million in fourth-quarter TCV, up more than 60% sequentially for Zscaler.Z-Flex customers posted nearly 30% average ARR uplift in fiscal 2026 as flexible deals eased expansion.Zscaler expects fiscal 2027 revenue growth of 16.6%-17.5% after fourth-quarter revenues rose 24.9%. Zscaler, Inc.’s (ZS - Free Report) Z-Flex offering is emerging as an important growth lever, helping the cybersecurity company deepen customer relationships while making it easier for enterprises to expand across its platform. The momentum was particularly strong in the fourth quarter of fiscal 2026.

In the fourth quarter, Z-Flex generated more than $770 million in total contract value (TCV), up more than 60% sequentially. For the full fiscal 2026, TCV exceeded $1.7 billion. Z-Flex offering gives customers multi-year commitments while allowing them to activate or swap modules without starting a new procurement process. This flexibility can shorten sales cycles and create more opportunities for upselling.

The results suggest that customers are responding well. Z-Flex customers recorded an average ARR (annual recurring revenues) uplift of nearly 30% in fiscal 2026. Zscaler’s fourth-quarter revenues increased 24.9% year over year to $898.2 million, while ARR rose 25% to $3.77 billion. Non-seat-based metered solutions, which include offerings beyond traditional user-based security, accounted for about 30% of new and upsell ACV in the fourth quarter and full-fiscal 2026, with related ARR growing more than 100%.

The key question is whether Z-Flex can keep driving adoption as Zscaler enters a slower-growth fiscal 2027. The company expects full-year revenue growth of 16.6%-17.5%. Still, rising platform adoption, larger customer deals and strong Z-Flex momentum provide reasons for optimism. If Zscaler can use flexible contracts to expand customer spending, Z-Flex could become an important support for growth while improving long-term revenue visibility.

PANW and CRWD: ZS’ Rivals Focus on Flexible PlatformsZscaler is not alone in using security platforms to expand customer spending. The company’s major competitors, Palo Alto Networks, Inc. (PANW - Free Report) and CrowdStrike Holdings, Inc. (CRWD - Free Report) , are also focusing on platform strategies to boost customer adoption.

Palo Alto Networks’ platformization strategy is translating into larger commitments, supported by expanding next-generation security ARR and RPO. PANW’s security platforms simplify security infrastructure for organizations by eliminating the need for multiple, stand-alone security appliances and software products.

This reduces the total cost of ownership, giving Palo Alto Networks a competitive edge and boosting customer adoption. In the third quarter of fiscal 2026, next-generation security ARR rose 60% year over year to $8.13 billion, and total RPO increased 36% to $18.4 billion, showing larger commitments across the platform.

Similar to Zscaler, CrowdStrike is also focusing on a flexible platform, Falcon Flex. By letting customers commit upfront and draw down spending across products over time, Falcon Flex is becoming a larger driver of platform consolidation.

In the second quarter of fiscal 2027, CrowdStrike added more than 935 Flex accounts, more than the prior three quarters combined, and Flex ending ARR exceeded $2.29 billion, up 101% year over year. Customers converting from standard subscriptions to Flex generated more than 40% average ending ARR uplift.

For Zscaler, the challenge is to make Z-Flex’s flexibility a clear advantage as rivals use platform-based models to drive adoption and larger customer commitments.

Zscaler’s Price Performance, Valuation & EstimatesZS shares have plunged 24.9% year to date, while the Zacks Security industry has surged 71.6%.

Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research

From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 6.96, significantly below the industry’s average of 17.11.

Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Zscaler’s fiscal 2027 and 2028 earnings implies a year-over-year increase of 7.1% and 16.4%, respectively. Estimates for fiscal 2027 have been revised downward over the past 60 days, while fiscal 2028 estimates have been lowered in the past 30 days.

Image Source: Zacks Investment Research

Zscaler currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zscaler Today

$169.80 -8.00 (-4.50%)

As of 09/4/2026 04:00 PM Eastern

$114.63▼

$336.99$215.90

Zscaler NASDAQ: ZS gave the market everything it could ask for in its fiscal fourth-quarter 2026 earnings report: outperformance, acceleration, wider margins, and strong guidance. The one thing it didn’t give was firm reassurance that the sales leadership transition was going smoothly. Execs noted the transition would play out in the first half of the year, but offered little color beyond that. The critical takeaway is that this is the catalyst for higher share prices, and news could come at any time.

Zscaler is not advancing as strongly as other cybersecurity stocks because of lost sales execs. While one was replaced early in the quarter, the loss led to cautious guidance, cautious analysts, and tepid stock price action. The upshot is that Zscaler, as the sector laggard with a catalyst ahead, is well positioned to advance aggressively once the headwind is removed. Until then, investors can focus on the results and price action, which underpin and reflect a market reversal.

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Zscaler Bottoms, on Cusp of Major Price InflectionZscaler’s chart price action is bullish, reflecting a Double-Bottom reversal pattern. The only bad news is that the pattern has yet to be confirmed, but that is likely over the coming months. Signs of strength include the action itself, high volume on buying days, and strengthening MACD, which points to improving momentum—each upswing is a little stronger than the last and likely to strengthen again, given the strength of results and guidance. Critical target levels are near $158 and $195, with the $158 support target potentially tested before a fresh high is set. Technical triggers include confirmed support at the low end of the range and/or a clear break to fresh highs.

Q4 results indicate the reversal will progress and new highs will be set. Revenue grew by 24.9%, accelerating year-over-year (YOY) to $898.19 million to outpace consensus by over 230 basis points. Strength came from new clients, penetration, and AI demand, with Security for AI Solutions growing 50% sequentially. Annual recurring revenue, an indicator of future revenue, also grew 25% both quarter over quarter and year over year, pointing to sustained strength in the coming quarters.

Margin news aligns with the bullish outlook, with GAAP and non-GAAP margins improving at the gross and operating levels. Key details include narrowing losses and improving adjusted profitability, with non-GAAP operating margin up 220 basis points (bps) to 24.3%. Adjusted earnings per share (EPS) were also solid, up by 34% and 10 cents better than expected. The only negative is a rising share count, but the increase is marginal, linked to share-based compensation, and insufficient to offset the equity gains.

The balance sheet reflects the impact of capital expenditures (CapEx), with cash down YOY, but that is the worst of the news. The cash depletion is offset by increased inventory and receivables; current and total assets are up, and liabilities increase. The net impact was a 44% increase in shareholder equity and the expectation of ample future cash flow to sustain future improvement.

Analysts Respond With Optimism: Forecast Complete Reversal in Price ActionZscaler Stock Forecast Today12-Month Stock Price Forecast:
$215.90
27.15% Upside

Moderate Buy
Based on 42 Analyst Ratings

Current Price$169.80High Forecast$390.00Average Forecast$215.90Low Forecast$150.00Zscaler Stock Forecast Details

Analysts expressed some skepticism about the sales team transition but were otherwise pleased with the results. Several analysts raised price targets immediately after the report, reinforcing the consensus target, which implies upside from recent levels. The fresh high is key because it puts the market above the critical resistance target and into a full technical reversal. In this scenario, ZS shares could move toward the high end of the range, pegged at $390.

Institutional activity suggests downside is limited, as they own about 46% of the stock and have been accumulating. More importantly, MarketBeat data indicates accelerated activity ahead of the release, underpinning late-summer support. The group is likely to remain active on dips, with the critical support target likely to trigger activity.

Zscaler’s biggest risk after the report is deceleration. While the latest results reflected acceleration, the guidance forecasts deceleration, which presents a headwind for sentiment. The caveat is that the quarter was strong and guidance came in well above forecasts. The likely outcome is that Zscaler has room to outperform its own guidance, potentially by a wide margin, as its zero-trust tools are in high demand, keeping analysts bullish and lifting estimates to align with reality. Agentic AI is the cybersecurity driver, and we’re in the very earliest phases of agentic rollout. Investors can expect agentic traffic and security needs to grow significantly over the next few years.

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Achieves strong Q4 and FY26 revenue growth of 25% year over year
Generates Q4 and FY26 ARR growth of 25% year over year

SAN JOSE, Calif., Sept. 03, 2026 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud security, today announced financial results for its fiscal fourth quarter and fiscal year ended July 31, 2026.

“AI represents one of the most significant opportunities in Zscaler's history. By connecting users, workloads, branches, and now agents directly to the applications they need without placing them on the network, we are uniquely equipped to help companies both combat the threats created by agentic AI and securely deploy AI agents and models,” said Jay Chaudhry, CEO, Chairman and Founder of Zscaler. “Our continued innovation across Zero Trust SASE, Agentic SecOps, Data Security, and Security for AI is driving increased platform adoption and creating new avenues for growth, as reflected in our strong Q4 results. As AI becomes foundational to how organizations operate, we are well positioned to extend our leadership as the cybersecurity platform for the AI era.”

“We delivered a strong fourth quarter, with revenue and ARR both growing 25% year over year, net new ARR growing 24%, and non-GAAP operating margin reaching a record 24%,” said Kevin Rubin, chief financial officer of Zscaler. “Our growth engine continues to broaden beyond users, with a strong contribution from non-seat-based solutions, continued Z-Flex momentum, record large-deal activity, and improving sales productivity. I am excited about our momentum as we enter fiscal 2027.”

Fourth Quarter Fiscal 2026 Results

Revenue: Grew 25% year over year to $898.2 million.ARR: Grew 25% year over year to $3,771 million, of which $246 million was net new ARR during the fourth quarter of fiscal 2026. Excluding the acquisition of Red Canary, which contributed ARR of $141 million, ARR grew 20% to $3,630 million and net new ARR grew 17%.Income (loss) from operations: GAAP loss from operations was $15.5 million, or 2% of revenue, compared to $32.2 million, or 4% of revenue, in the fourth quarter of fiscal 2025. Non-GAAP income from operations was $218.4 million, or a record 24% of revenue, compared to $158.9 million, or 22% of revenue, in the fourth quarter of fiscal 2025.Net income (loss): GAAP net loss was $3.4 million, compared to $17.6 million in the fourth quarter of fiscal 2025. Non-GAAP net income was $198.2 million, compared to $146.7 million in the fourth quarter of fiscal 2025.Net income (loss) per share, diluted: GAAP net loss per share, diluted, was $0.02, compared to $0.11 in the fourth quarter of fiscal 2025. Non-GAAP net income per share was $1.19, compared to $0.89 in the fourth quarter of fiscal 2025.Cash flow: Cash provided by operations was $279.3 million, or 31% of revenue, compared to $250.6 million, or 35% of revenue, in the fourth quarter of fiscal 2025. Free cash flow was $60.8 million, or 7% of revenue, compared to $171.9 million, or 24% of revenue, in the fourth quarter of fiscal 2025, reflecting capex and internal use software of $218.5 million in the fourth quarter of fiscal 2026 versus $78.7 million in the fourth quarter of fiscal 2025.Deferred revenue: Grew 19% year over year to $2,926 million as of July 31, 2026. Full Year Fiscal 2026 Results

Revenue: Grew 25% year over year to $3,353 million. Excluding the acquisition of Red Canary, Revenue grew 20% to $3,209 million.Income (loss) from operations: GAAP loss from operations was $133.3 million, or 4% of revenue, compared to $128.5 million, or 5% of revenue, in fiscal 2025. Non-GAAP income from operations was $767.1 million, or 23% of revenue, compared to $580.1 million, or 22% of revenue, in fiscal 2025.Net income (loss): GAAP net loss was $63.2 million, compared to $41.5 million in fiscal 2025. Non-GAAP net income was $704.2 million, compared to $534.8 million in fiscal 2025.Net income (loss) per share, diluted: GAAP net loss per share, diluted, was $0.39, compared to $0.27 in fiscal 2025. Non-GAAP net income per share was $4.21, compared to $3.28 in fiscal 2025.Cash flow: Cash provided by operations was $1,130 million, or 34% of revenue, compared to $972.5 million, or 36% of revenue, in fiscal 2025. Free cash flow was $779.1 million, or 23% of revenue, compared to $726.7 million, or 27% of revenue, in fiscal 2025. Change in Non-GAAP Measures Presentation

Beginning in fiscal 2026, we adopted a long-term projected non-GAAP tax rate of 21%, reduced from the previous rate of 23% which was applied to all prior periods. This adjustment aligns with the enactment of the One Big Beautiful Bill Act. The revised tax rate will apply prospectively. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations.

Financial Outlook

For the first quarter of fiscal 2027, the company expects:

Revenue of $935 million to $939 million, approximately 19% year-over-year growth.Non-GAAP gross margin of approximately 80%Non-GAAP income from operations of $215 million to $217 million, approximately 25% to 26% year-over-year growth, representing a 23% operating margin.Non-GAAP net income per share of approximately $1.15 to $1.16, assuming approximately 170 million fully diluted shares outstanding and a non-GAAP tax rate of 21%. For the full year fiscal 2027, the company expects:

ARR of $4.396 billion to $4.426 billion, growth of approximately 16.6% to 17.4%.Revenue of approximately $3.908 billion to $3.938 billion, growth of 16.6% to 17.5%.Non-GAAP gross margin of approximately 80%Non-GAAP income from operations of $924 million to $932 million, growth of approximately 21%.Non-GAAP net income per share of $4.86 to $4.90, assuming approximately 173 million fully diluted shares outstanding and a non-GAAP tax rate of 21%.Free cash flow margin of approximately 23.0 to 23.5%. These statements are forward-looking and actual results may differ materially. Refer to the Forward-Looking Statements safe harbor below for information on the factors that could cause our actual results to differ materially from these forward-looking statements.

Guidance for non-GAAP income from operations and non-GAAP net income per share exclude, as applicable, stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets and amortization of debt issuance costs. We have not reconciled our expectations of non-GAAP income from operations and non-GAAP net income per share to their most directly comparable GAAP measures because certain items are out of our control or cannot be reasonably predicted. For those reasons, we are also unable to address the probable significance of the unavailable information, the variability of which may have a significant impact on future results. Accordingly, a reconciliation for the guidance for non-GAAP income from operations and non-GAAP net income per share is not available without unreasonable effort.

For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the "Explanation of Non-GAAP Financial Measures" section of this press release.

Conference Call and Webcast Information

Zscaler will host a conference call for analysts and investors to discuss its fourth quarter of fiscal 2026 and outlook for its first quarter of fiscal 2027 and full year fiscal 2027 today at 1:30 p.m. Pacific time (4:30 p.m. Eastern time).

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including, but not limited to, statements regarding our future financial and operating performance, including our financial outlook for the first quarter of fiscal 2027 and full year fiscal 2027. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including but not limited to: macroeconomic influences and instability, geopolitical events, operations and financial results and the economy in general; risks related to the use of AI in our platform; our ability to identify and effectively implement the necessary changes to address execution challenges; risks associated with managing our rapid growth, including fluctuations from period to period; our limited experience with new products and subscription and support introductions and the risks associated with new products and subscription and support offerings, including the discovery of software bugs; our ability to attract and retain new customers; the failure to timely develop and achieve market acceptance of new products and subscriptions as well as existing products and subscriptions and support; rapidly evolving technological developments in the market for network security products and subscription and support offerings and our ability to remain competitive; length of sales cycles; useful lives of our assets and other estimates; and general market, political, economic and business conditions.

Additional risks and uncertainties that could affect our financial results are included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth from time to time in our filings and reports with the Securities and Exchange Commission ("SEC"), including our Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 2026, filed on May 26, 2026, as well as future filings and reports by us, copies of which are available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. You should not rely on these forward-looking statements, as actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of such risks and uncertainties. Additional information will also be set forth in other filings that we make with the SEC from time to time. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we do not assume any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

Use of Non-GAAP Financial Information

We believe that the presentation of non-GAAP financial information provides important supplemental information to management and investors regarding financial and business trends relating to our financial condition and results of operations. For further information regarding why we believe that these non-GAAP measures provide useful information to investors, the specific manner in which management uses these measures, and some of the limitations associated with the use of these measures, please refer to the “Explanation of Non-GAAP Financial Measures” section of this press release.

About Zscaler

Zscaler (NASDAQ: ZS) accelerates digital transformation so customers can be more agile, efficient, resilient, and secure. The Zscaler Zero Trust Exchange™ platform protects thousands of customers from cyberattacks and data loss by securely connecting users, devices, and applications in any location. Distributed across over 200 public data centers globally and thousands of private sites at the edge, the SASE-based Zero Trust Exchange is the world’s largest in-line cloud security platform.

Zscaler™ and the other trademarks listed at https://www.zscaler.com/legal/trademarks are either (i) registered trademarks or service marks or (ii) trademarks or service marks of Zscaler, Inc. in the United States and/or other countries. Any other trademarks are the properties of their respective owners.

Investor Relations Contacts

Kim Watkins
SVP, Investor Relations & Strategic Finance
[email protected] 

Nick Gonzalez
Media Relations Contact
[email protected] 

ZSCALER, INC.Condensed Consolidated Statements of Operations(in thousands, except per share amounts)(unaudited)         Three Months Ended Year Ended July 31, July 31,  2026   2025   2026   2025 Revenue$898,185  $719,226  $3,352,523  $2,673,115 Cost of revenue(1) (2) (3) 208,964   172,240   777,629   618,178 Gross profit 689,221   546,986   2,574,894   2,054,937 Operating expenses:       Sales and marketing(1) (2)(3) 381,363   330,594   1,495,812   1,259,158 Research and development(1) (2) (3) 241,483   177,606   903,399   672,485 General and administrative(1)(3)(4) 81,867   71,028   308,950   251,754 Total operating expenses 704,713   579,228   2,708,161   2,183,397 Loss from operations (15,492)  (32,242)  (133,267)  (128,460)Interest income 35,042   33,175   136,132   125,364 Interest expense(5) (2,746)  (2,074)  (11,794)  (9,522)Other expense, net (1,900)  (762)  (8,210)  (5,673)Income (loss) before income taxes 14,904   (1,903)  (17,139)  (18,291)Provision for income taxes 18,273   15,675   46,040   23,187 Net loss$(3,369) $(17,578) $(63,179) $(41,478)Net loss per share, basic and diluted$(0.02) $(0.11) $(0.39) $(0.27)Weighted-average shares used in computing net loss per share, basic and diluted 161,872   156,496   160,219   154,404 
(1) Includes stock-based compensation expense and related payroll taxes:

Cost of revenue$22,978  $19,324  $87,469  $70,998 Sales and marketing 69,116   60,780   294,537   259,562 Research and development 93,176   69,149   341,880   257,663 General and administrative 29,938   31,542   117,762   97,311 Total$215,208  $180,795  $841,648  $685,534 
(2) Includes amortization expense of acquired intangible assets:

Cost of revenue$8,003  $3,655  $27,855  $14,975 Sales and marketing 4,277   425   15,613   1,700 Research and development —   —   —   145 Total$12,280  $4,080  $43,468  $16,820 
(3) Includes restructuring and other charges:

Cost of revenue$583  $138  $1,333  $138 Sales and marketing 3,692   —   6,501   — Research and development 617   4,783   1,799   4,783 General and administrative 627   —   627   — Total$5,519  $4,921  $10,260  $4,921                                 (4) Includes acquisition-related expenses:$923  $1,316  $5,000  $1,316                                 (5) Includes amortization of debt issuance costs:$2,045  $1,346  $8,166  $4,293 
ZSCALER, INC.Condensed Consolidated Balance Sheets(in thousands)(unaudited) July 31, July 31,  2026   2025 Assets   Current assets:   Cash and cash equivalents$928,354  $2,389,023 Short-term investments 2,545,797   1,183,386 Accounts receivable, net 1,149,073   992,181 Deferred contract acquisition costs 215,577   180,819 Prepaid expenses and other current assets 192,432   148,881 Total current assets 5,031,233   4,894,290 Property and equipment, net 753,001   543,377 Operating lease right-of-use assets 137,231   89,772 Deferred contract acquisition costs, noncurrent 402,423   328,722 Acquired intangible assets, net 214,355   47,323 Goodwill 1,218,098   417,730 Other noncurrent assets 110,373   98,674 Total assets$7,866,714  $6,419,888     Liabilities and Stockholders’ Equity   Current liabilities:   Accounts payable$47,972  $46,906 Accrued expenses and other current liabilities 133,304   93,984 Accrued compensation 234,640   181,807 Deferred revenue 2,480,501   2,054,417 Operating lease liabilities 64,894   52,497 Total current liabilities 2,961,311   2,429,611 Convertible senior notes 1,696,355   1,700,727 Deferred revenue, noncurrent 445,272   413,609 Operating lease liabilities, noncurrent 94,575   43,352 Other noncurrent liabilities 70,940   33,316 Total liabilities 5,268,453   4,620,615 Stockholders’ Equity   Common stock 163   159 Additional paid-in capital 3,874,379   2,980,591 Accumulated other comprehensive income (loss) (23,544)  8,081 Accumulated deficit (1,252,737)  (1,189,558)Total stockholders’ equity 2,598,261   1,799,273 Total liabilities and stockholders’ equity$7,866,714  $6,419,888 
ZSCALER, INC.Condensed Consolidated Statements of Cash Flows(in thousands)(unaudited)         Three Months Ended Year Ended July 31, July 31,  2026   2025   2026   2025 Cash Flows from Operating Activities       Net loss$(3,369) $(17,578) $(63,179) $(41,478)Adjustments to reconcile net loss to cash provided by operating activities:       Depreciation and amortization expense 42,933   30,260   148,544   104,361 Amortization expense of acquired intangible assets 12,280   4,080   43,468   16,820 Amortization of deferred contract acquisition costs 54,018   44,811   203,693   166,310 Amortization of debt issuance costs 2,045   1,346   8,166   4,293 Operating lease costs 22,487   15,102   82,934   62,998 Stock-based compensation expense 211,591   172,654   821,923   661,350 Accretion of investments purchased at a discount (87)  (2,061)  (4,655)  (15,923)Unrealized (gains) losses on hedging transactions, net 264   1,231   (772)  369 Deferred income taxes (20,713)  3,490   (20,387)  (14,351)Other 627   (72)  7,484   987 Changes in operating assets and liabilities, net of effects of business acquisitions:       Accounts receivable (420,031)  (376,516)  (139,989)  (256,010)Deferred contract acquisition costs (127,492)  (90,467)  (312,152)  (230,453)Prepaid expenses, other current and noncurrent assets 977   (29,390)  (28,076)  (41,572)Accounts payable 9,365   (11,415)  (10,627)  17,532 Accrued expenses, other current and noncurrent liabilities 18,243   12,213   36,417   5,180 Accrued compensation 54,003   26,690   44,590   20,997 Deferred revenue 445,776   483,041   379,873   573,052 Operating lease liabilities (23,632)  (16,815)  (67,601)  (62,009)Net cash provided by operating activities 279,285   250,604   1,129,654   972,453 Cash Flows from Investing Activities       Purchases of property, equipment and other assets (199,837)  (60,046)  (277,304)  (164,252)Capitalized internal-use software (18,684)  (18,637)  (73,207)  (81,508)Payments for business acquisitions, net of cash acquired (148,026)  —   (918,074)  (834)Purchase of strategic investments (6,171)  (38)  (10,413)  (824)Purchases of short-term investments (282,564)  (393,993)  (2,254,279)  (1,280,629)Proceeds from maturities of short-term investments 171,232   225,132   589,880   1,101,025 Proceeds from sale of short-term investments 113,097   —   290,665   — Net cash used in investing activities (370,953)  (247,582)  (2,652,732)  (427,022)Cash Flows from Financing Activities       Proceeds from issuance of common stock upon exercise of stock options —   84   3,984   3,581 Proceeds from issuance of common stock under the employee stock purchase plan 37,910   41,219   59,416   63,563 Payment of holdback amounts related to a business acquisition —   (352)  (110)  (792)Proceeds from issuance of the 2028 convertible senior notes —   1,725,000   —   1,725,000 Payments for issuance costs related to the 2028 convertible senior notes —   (24,150)  (684)  (24,150)Purchases of capped calls related to the 2028 convertible senior notes —   (196,650)  (197)  (196,650)Payments for settlement of the 2025 convertible senior notes —   (1,150,040)  —   (1,150,040)Net cash provided by financing activities 37,910   395,111   62,409   420,512 Net increase (decrease) in cash and cash equivalents (53,758)  398,133   (1,460,669)  965,943 Cash and cash equivalents at beginning of period 982,112   1,990,890   2,389,023   1,423,080 Cash and cash equivalents at end of period$928,354  $2,389,023  $928,354  $2,389,023 
ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except percentages)(unaudited)         Three Months Ended Year Ended July 31, July 31,  2026   2025   2026   2025         Revenue$898,185  $719,226  $3,352,523  $2,673,115         Non-GAAP Gross Profit and Non-GAAP Gross Margin       GAAP gross profit$689,221  $546,986  $2,574,894  $2,054,937 Add:       Stock-based compensation expense and related payroll taxes(1) 22,978   19,324   87,469   70,998 Amortization expense of acquired intangible assets 8,003   3,655   27,855   14,975 Restructuring and other charges 583   138   1,333   138 Non-GAAP gross profit$720,785  $570,103  $2,691,551  $2,141,048 GAAP gross margin 77%  76%  77%  77%Non-GAAP gross margin 80%  79%  80%  80%        Non-GAAP Income from Operations and Non-GAAP Operating Margin       GAAP loss from operations$(15,492) $(32,242) $(133,267) $(128,460)Add:       Stock-based compensation expense and related payroll taxes(2) 215,208   180,795   841,648   685,534 Amortization expense of acquired intangible assets 12,280   4,080   43,468   16,820 Restructuring and other charges 5,519   4,921   10,260   4,921 Acquisition-related expenses 923   1,316   5,000   1,316 Non-GAAP income from operations$218,438  $158,870  $767,109  $580,131 GAAP operating margin(2)% (4)% (4)% (5)%Non-GAAP operating margin 24%  22%  23%  22%
(1) Includes acquisition-related stock-based compensation expense and related payroll taxes of $0.1 million for the fourth quarter of fiscal 2025, and $0.1 million and $0.2 million for fiscal 2026 and fiscal 2025, respectively. Acquisition-related stock-based compensation includes deferred merger consideration subject to post-combination service vesting conditions, performance stock awards, and acquisition replacement awards.

(2) Includes acquisition-related stock-based compensation expense and related payroll taxes of $19.8 million and $8.2 million for the fourth quarter of fiscal 2026 and fiscal 2025, respectively, and $57.4 million and $33.1 million for fiscal 2026 and fiscal 2025, respectively.

ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except per share amounts)(unaudited)         Three Months Ended Year Ended July 31, July 31,  2026   2025   2026   2025 Non-GAAP Net Income per Share, Diluted       Net loss$(3,369) $(17,578) $(63,179) $(41,478)Add: GAAP provision for income taxes 18,273   15,675   46,040   23,187 GAAP income (loss) before income taxes 14,904   (1,903)  (17,139)  (18,291)Add:       Stock-based compensation expense and related payroll taxes(1) 215,208   180,795   841,648   685,534 Amortization expense of acquired intangible assets 12,280   4,080   43,468   16,820 Restructuring and other charges 5,519   4,921   10,260   4,921 Acquisition-related expenses 923   1,316   5,000   1,316 Amortization of debt issuance costs 2,045   1,346   8,166   4,293 Non-GAAP net income before income taxes 250,879   190,555   891,403   694,593 Non-GAAP provision for income taxes(2) 52,684   43,830   187,193   159,757 Non-GAAP net income$198,195  $146,725  $704,210  $534,836         GAAP provision for income taxes 18,273   15,675   46,040   23,187 Add: Income tax and other tax adjustments(2) 34,411   28,155   141,153   136,570 Non-GAAP provision for income taxes(2)$52,684  $43,830  $187,193  $159,757 Non-GAAP effective tax rate(2) 21%  23%  21%  23%        Non-GAAP net income$198,195  $146,725  $704,210  $534,836 Add: Non-GAAP interest expense, net of tax related to the convertible senior notes —   183   —   1,011 Numerator used in computing non-GAAP net income per share, diluted$198,195  $146,908  $704,210  $535,847         GAAP net loss per share, diluted$(0.02) $(0.11) $(0.39) $(0.27)Stock-based compensation expense and related payroll taxes(3) 1.29   1.09   5.04   4.20 Amortization expense of acquired intangible assets 0.07   0.02   0.26   0.10 Restructuring and other charges 0.03   0.03   0.06   0.03 Acquisition-related expenses 0.01   0.01   0.03   0.01 Amortization of debt issuance costs 0.01   0.01   0.05   0.03 Income tax and other tax adjustments(2) (0.21)  (0.17)  (0.84)  (0.84)Non-GAAP interest expense, net of tax related to the convertible senior notes —   —   —   0.01 Adjustment to total fully diluted earnings per share(4) 0.01   0.01   —   0.01 Non-GAAP net income per share, diluted$1.19  $0.89  $4.21  $3.28         Weighted-average shares used in computing GAAP net loss per share, diluted 161,872   156,496   160,219   154,404 Add: Outstanding potentially dilutive equity incentive awards 706   4,457   2,959   3,949 Add: Convertible senior notes 3,925   6,211   3,925   7,269 Less: Antidilutive impact of capped call transactions(5) —   (1,580)  —   (2,210)Weighted-average shares used in computing non-GAAP net income per share, diluted 166,503   165,584   167,103   163,412  (1) Includes acquisition-related stock-based compensation expense and related payroll taxes of $19.8 million and $8.2 million for the fourth quarter of fiscal 2026 and fiscal 2025, respectively, and $57.4 million and $33.1 million for fiscal 2026 and fiscal 2025, respectively.

(2) Beginning in fiscal 2026, we adopted a long-term projected non-GAAP tax rate of 21%, reduced from the previous rate of 23%, which was applied to all prior periods. This adjustment aligns with the enactment of the One Big Beautiful Bill Act. The revised tax rate will apply prospectively. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations.

(3) The dilutive impact of acquisition-related stock-based compensation expense and related payroll taxes was $0.12 and $0.05 per share for the fourth quarter of fiscal 2026 and fiscal 2025, respectively, and $0.34 and $0.20 per share for fiscal 2026 and fiscal 2025, respectively.

(4) The sum of the fully diluted earnings per share impact of individual reconciling items may not total to fully diluted non-GAAP net income per share due to the weighted-average shares used in computing the GAAP net loss per share differs from the weighted-average shares used in computing the non-GAAP net income per share, and due to rounding of the individual reconciling items. The GAAP net loss per share calculation uses a lower share count as it excludes potentially dilutive shares, which are included in calculating the non-GAAP net income per share.

(5) We exclude the in-the-money portion of the convertible senior notes for non-GAAP weighted-average diluted shares as they are covered by our capped call transactions. Our outstanding capped call transactions are antidilutive under GAAP but are expected to mitigate the dilutive effect of the convertible senior notes, and therefore are included in the calculation of non-GAAP diluted shares outstanding. The capped calls have an antidilutive impact when the average stock price of our common stock in a given period is higher than their exercise price.

ZSCALER, INC.Reconciliation of GAAP to Non-GAAP Financial Measures(in thousands, except percentages)(unaudited)         Three Months Ended Year Ended July 31, July 31,  2026   2025   2026   2025 Free Cash Flow       Net cash provided by operating activities$279,285  $250,604  $1,129,654  $972,453 Less:       Purchases of property, equipment and other assets (199,837)  (60,046)  (277,304)  (164,252)Capitalized internal-use software (18,684)  (18,637)  (73,207)  (81,508)Free cash flow$60,764  $171,921  $779,143  $726,693         Free Cash Flow Margin       Net cash provided by operating activities, as a percentage of revenue 31%  35%  34%  36%Less:       Purchases of property, equipment and other assets, as a percentage of revenue(22)% (8)% (8)% (6)%Capitalized internal-use software, as a percentage of revenue(2)% (3)% (3)% (3)%Free cash flow margin 7%  24%  23%  27%                
ZSCALER, INC.
Explanation of Non-GAAP and Other Financial Measures

In addition to our results determined in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, as it has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In particular, free cash flow is not a substitute for cash provided by operating activities. Additionally, the utility of free cash flow as a measure of our liquidity is further limited as it does not represent the total increase or decrease in our cash balance for a given period. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation of our historical non-GAAP financial measures to their most directly comparable financial measures stated in accordance with GAAP has been included in this press release. There is no GAAP measure that is comparable to ARR, so we have not reconciled the ARR data included to any GAAP measure. Investors are cautioned that there are a number of limitations associated with the use of non-GAAP financial measures and key metrics as analytical tools. Investors are encouraged to review these reconciliations, and not to rely on any single financial measure to evaluate our business.

Expenses Excluded from Non-GAAP Measures

Stock-based compensation expense is excluded primarily because it is a non-cash expense that management believes is not reflective of our ongoing operational performance. Employer payroll taxes related to stock-based compensation, which is a cash expense, are excluded because these are tied to the timing and size of the exercise or vesting of the underlying equity incentive awards and the price of our common stock at the time of vesting or exercise, which may vary from period to period independent of the operating performance of our business. Amortization expense of acquired intangible assets and amortization of debt issuance costs from the convertible senior notes are excluded because these are non-cash expenses and are not reflective of our ongoing operational performance. Acquisition-related expenses incurred with business acquisitions are excluded because these are not reflective of our ongoing operational performance. Restructuring and other charges includes severance and termination benefits in connection with a restructuring plan to streamline operations and to align people, roles and projects to our strategic priorities. These expenses are excluded because they fluctuate in amount and frequency and are not reflective of our core business operating performance.

Beginning in fiscal 2026, we adopted a long-term projected non-GAAP tax rate of 21%, reduced from the previous rate of 23% which was applied to all prior periods. This adjustment aligns with the enactment of the One Big Beautiful Bill Act. The revised tax rate will apply prospectively. We will continue to assess the appropriate non-GAAP tax rate on a regular basis, which could be subject to changes for a variety of reasons, including the rapidly evolving global tax environment, significant changes in our geographic earnings mix, or other changes to our strategy or business operations.

Non-GAAP and Other Financial Measures

Non-GAAP Gross Profit and Non-GAAP Gross Margin. We define non-GAAP gross profit as GAAP gross profit excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets and restructuring and other charges. We define non-GAAP gross margin as non-GAAP gross profit as a percentage of revenue.

Non-GAAP Income from Operations and Non-GAAP Operating Margin. We define non-GAAP income from operations as GAAP loss from operations excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, restructuring and other charges and acquisition-related expenses. We define non-GAAP operating margin as non-GAAP income from operations as a percentage of revenue.

Non-GAAP Net Income per Share, Diluted. We define non-GAAP net income as GAAP net loss excluding stock-based compensation expense and related employer payroll taxes, amortization expense of acquired intangible assets, restructuring and other charges, amortization of debt issuance costs, acquisition-related expenses and the non-GAAP provision for income taxes adjustment. We define non-GAAP net income per share, diluted, as non-GAAP net income plus the applicable non-GAAP interest expense related to the convertible senior notes divided by the weighted-average diluted shares outstanding. The weighted-average diluted shares outstanding includes the effect of potentially diluted common stock equivalents outstanding during the period and the anti-dilutive impact of the capped call transactions entered into in connection with the convertible senior notes.

Annual Recurring Revenue. ARR refers to the next 12 months of revenue from subscription contracts as of the measurement date. To establish ARR for a customer, we assume that any contract expiring during the next 12 months will be renewed under the existing terms.

Bookings. We define bookings as the total customer contract value over the entire duration of each such customer contract. This includes all recurring subscription fees committed for the full term of each such customer contract.

Free Cash Flow and Free Cash Flow Margin. We define free cash flow as net cash provided by operating activities less purchases of property, equipment and other assets and capitalized internal-use software. We define free cash flow margin as free cash flow divided by revenue. We believe that free cash flow and free cash flow margin are useful indicators of liquidity that provide information to management and investors about the amount of cash generated from our operations that, after the investments in property, equipment and other assets and capitalized internal-use software, can be used for strategic initiatives.

Zscaler (ZS -3.78%) reports its fiscal fourth-quarter results after the market's close tomorrow, Sept. 3. While several cybersecurity stocks are near all-time highs, Zscaler has been out of favor recently, as management gave cautious guidance in its previous earnings report.

However, with two of the largest cybersecurity companies, CrowdStrike (NASDAQ: CRWD) and Palo Alto Networks (NASDAQ: PANW), recently reporting results that show AI is boosting cybersecurity demand, could Zscaler beat the modest expectations investors have for its business?

Image source: The Motley Fool.

As we've seen numerous times this earnings season, beating top- and bottom-line expectations isn't always enough. With that in mind, here are some of the things I'll be watching tomorrow when the company reports.

3 Things I'll be watchingFirst of all, Zscaler doesn't exactly have a high bar to clear. Management's previous guidance calls for roughly 22% year-over-year revenue growth in the fiscal fourth quarter, and the company has a strong recent history of outperforming its own expectations. In the fiscal third quarter, Zscaler reported 25% growth in both revenue and ARR, as well as its highest-ever adjusted operating margin. But while I'll be watching this, it isn't my main focus.

In the company's fiscal third-quarter report, the problem wasn't Zscaler's top and bottom line. That isn't why the stock fell sharply after the report. It was the guidance. The company's initial fiscal 2027 outlook called for annual recurring revenue growth to slow to just 16%-17%. With CrowdStrike just reporting its highest net new ARR growth rate ever, a significant guidance raise from Zscaler could be a major catalyst for the stock.

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After all, a big reason CrowdStrike is trading near all-time highs is that management issued fiscal 2027 guidance calling for net new ARR growth of 630 basis points (6.3 percentage points) above the previous level.

I'll also be watching the RPO (remaining performance obligation), which essentially tells us Zscaler's revenue backlog. This grew 30% in the fiscal third quarter to $6.5 billion, and if the company continues to book revenue faster than its top-line reflects, it could indicate healthy growth acceleration in the near future.

It's all about the outlookAs we've seen with several other AI-focused businesses in this earnings season, simply beating expectations isn't enough. As I'm writing this, Palo Alto's stock is falling despite topping estimates. The biggest factor is what management says about the future. If the company confirms a deceleration in growth, even a strong top-line beat might not matter. On the other hand, strong guidance would likely make investors far more confident heading into the new fiscal year.

The acceleration of agentic AI and the threats that come with it have forced enterprises to bump up spending on cyber defenses. Zscaler's two largest peers just issued earnings reports that clearly show this. The company is well-positioned, with its zero-trust architecture, to lead the way in securing agentic workflows. If the numbers it reports tomorrow, along with its forward guidance and management commentary, indicate that the company is gaining traction in the agentic AI cybersecurity push, the stock could react very positively.

Key Takeaways Zscaler plans higher CapEx as AI adoption drives demand for more infrastructure and secure workloads.ZS posted 25% revenue growth in Q3, while AI Protect generated more than $100 million in 12-month bookings.Zscaler cut FY26 free cash flow margin guidance to 22.8%-23.3% as CapEx pressures cash flow. Zscaler, Inc. (ZS - Free Report) is preparing for higher capital expenditures as the rapid adoption of artificial intelligence (AI) creates new cybersecurity demands. The company needs to expand its infrastructure to handle increasing data volumes and secure AI workloads, but the added spending could pressure free cash flow in the near term.

Management previously indicated that fiscal 2026 capital expenditures could reach the high-single-digit percentage range of revenues, up from its earlier mid-single-digit forecast. CapEx could increase by another 200 basis points as a percentage of revenues in fiscal 2027. Higher costs for memory, storage and processors are expected to drive much of the increase. To manage these costs, Zscaler has been moving some fiscal 2027 equipment purchases into the fourth quarter of fiscal 2026 to secure current prices.

The bigger question is whether AI-driven demand can generate enough growth to justify the investment. So far, the signs are encouraging. Zscaler’s third-quarter fiscal 2026 revenues increased 25% year over year to $850.4 million, while annual recurring revenues also rose 25% to $3.53 billion. Its AI Protect solution generated more than $100 million in bookings over the past 12 months, showing that AI security is moving beyond an early-stage opportunity.

Zscaler also has enough financial strength to support higher spending. The company generated free cash flow of $136 million in the third quarter and $718.4 million in the first nine months of fiscal 2026. Free cash flow margin for the first three quarters of fiscal 2026 was 29%. However, rising capital expenditure is likely to hurt the company’s cash flow. During the last quarterly results, management lowered its fiscal 2026 free cash flow margin guidance range to 22.8%-23.3% from the earlier forecast of 26.5%-27%.

Higher CapEx creates a near-term financial headwind, but strong AI security demand could make the investment worthwhile if Zscaler converts infrastructure spending into sustained revenue growth. The Zacks Consensus Estimate for fiscal 2026 and 2027 indicates year-over-year revenue growth of 24.6% and 16.9%, respectively.

How Are ZS’ Rivals Investing to Capture AI Security Growth?Palo Alto Networks, Inc. (PANW - Free Report) and CrowdStrike Holdings, Inc. (CRWD - Free Report) are taking a different approach to the AI security opportunity. Rather than relying heavily on physical infrastructure spending, both companies are directing more resources toward software, product development and acquisitions.

Palo Alto Networks has been expanding its AI and identity security capabilities through major acquisitions, including buyout deals for agentic security firm Portkey, endpoint specialist Koi Security, and major identity play CyberArk Software.

PANW has also been directing investment toward software integration, such as its Cortex XSIAM platform and Prisma AIRS AI Gateway. The company has also collaborated with AI infrastructure leaders like NVIDIA through which it is embedding security directly into AI infrastructure. This strategy allows Palo Alto Networks to pursue AI growth without relying primarily on higher traditional CapEx.

CrowdStrike is following a similar software-focused model. Its non-GAAP research & development spending jumped 25.3% year over year to $273.4 million in the first quarter of fiscal 2027.

The company has also strengthened its AI security portfolio through acquisitions, including SGNL in January 2026 and Pangea in September 2025. Pangea added AI detection and response capabilities to Falcon, helping CrowdStrike protect AI data, models, agents, identities and infrastructure.

Zscaler’s Price Performance, Valuation & EstimatesZS shares have plunged 16.7% year to date, while the Zacks Security industry surged 85%.

Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research

From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 7.77, significantly below the industry’s average of 18.85.

Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Zscaler’s fiscal 2026 and 2027 earnings implies a year-over-year increase of 26.2% and 10.7%, respectively. Estimates for fiscal 2026 have remained unchanged over the past 60 days, while fiscal 2027 estimates have been revised upward in the past 30 days.

Image Source: Zacks Investment Research

Zscaler currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Partnership operates the Zscaler Zero Trust Exchange™ platform on Schwarz Digits’ cloud infrastructure STACKIT in Germany.Joint offering delivers sovereign Zero Trust SASE for customers across Europe, combining Zscaler’s deep cybersecurity expertise with data sovereignty. BAD FRIEDRICHSHALL, Germany and MUNICH, July 28, 2026 (GLOBE NEWSWIRE) -- Zscaler, the cybersecurity platform for the AI era, and Schwarz Digits, the IT and digital division of Schwarz Group, today announced a strategic partnership. The collaboration combines the Zscaler Zero Trust Exchange platform with Schwarz Digits’ European sovereign cloud STACKIT. This creates a sovereign Zero Trust Secure Access Service Edge (SASE) service designed to prevent AI-driven threats and increase cyber resilience. Now available to customers across Europe, this offering is hosted in German data centers and operated by STACKIT. While built for organizations across every industry, the solution is tailored specifically for mission-critical operations in public administration, defense, financial services, and healthcare.

European customers are increasingly demanding sovereign technology while cybersecurity threats continue to escalate rapidly in scale, speed and sophistication, driven in particular by the use of AI by malicious actors. At the same time, European regulations including NIS2, DORA, the AI Act, and others have elevated cybersecurity to a board-level priority. Organizations must address digital sovereignty concerns while also meeting strict cybersecurity regulatory requirements and not losing sight of performance demands. This balancing act can be difficult to achieve.

Schwarz Digits and Zscaler solve these needs simultaneously by deploying the Zscaler security platform in Schwarz Digits’ data centers to deliver a holistic Zero Trust SASE sovereign cloud approach. Organizations can now secure their hybrid workforce while meeting demanding operational resilience and supply-chain security expectations. The joint offering covers the deployment, management, operation, and support of a state-of-the-art cybersecurity cloud platform, so that customer data and operations remain protected against cyber threats and aligned with European legal requirements.

Christian Müller, CEO of Schwarz Digits, explains: “Technological independence begins with infrastructure. Through this partnership, we are taking network security to a new level: we are evolving existing security architectures and focusing on high-performance identity verification. For our customers, this means even stronger protection against cyberattacks.”

“In an era of AI-driven cyber threats, a modern Zero Trust SASE solution is the only effective way to protect sensitive enterprise data,” says Misha Kuperman, Chief Reliability Officer at Zscaler. “Our partnership with Schwarz Digits is a concrete demonstration of our long-term commitment to Europe: Together, we help our customers eliminate their attack surface and prevent the lateral movement of threats, while still maintaining compliance with European regulations through EU data residency. This enables the highest level of security while aligning with European digital sovereignty regulations.”

“Our customers in the private and public sector need secure, resilient IT infrastructure without compromising on digital sovereignty. By uniting the expertise of two technology leaders, we make this a reality: Zscaler provides an advanced Zero Trust SASE architecture to counter AI-driven cyberattacks, while Schwarz Digits ensures a sovereign cloud infrastructure through STACKIT. This helps to ensure all data remains in the EU and is protected against third-party access,” says Bernd Wagner, CSO of Schwarz Digits.

More information
Please find more information at www.schwarz-digits.de/en.

Contact
Schwarz Digits
Telephone +49 7132 30 490 490
[email protected]

Media Contacts
Nick Gonzalez, Director of Public Relations
[email protected]

About Zscaler
Zscaler (NASDAQ: ZS) is a pioneer and global leader in zero trust security. The world’s largest businesses, critical infrastructure organizations, and government agencies rely on Zscaler to secure users, branches, applications, data & devices, and to accelerate digital transformation initiatives. Distributed across 160+ data centers globally, the Zscaler Zero Trust Exchange™ platform combined with advanced AI combats billions of cyber threats and policy violations every day and unlocks productivity gains for modern enterprises by reducing costs and complexity.

Forward-Looking Statements

This press release contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements include the expected delivery, adoption, and performance of the Zero Trust security service, including deployment on STACKIT infrastructure. These forward-looking statements are subject to the safe harbor provisions created by the Private Securities Litigation Reform Act of 1995. A significant number of factors could cause actual results to differ materially from statements made in this press release, including those factors related to the deployment, performance, regulatory alignment, customer adoption and market acceptance of the joint offering across Europe. Additional risks and uncertainties are set forth in our most recent Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on May 26, 2026, which is available on our website at ir.zscaler.com and on the SEC’s website at www.sec.gov. Any forward-looking statements in this release are based on the limited information currently available to Zscaler as of the date hereof, which is subject to change, and Zscaler will not necessarily update the information, even if new information becomes available in the future.

About Schwarz Digits
Schwarz Digits is the IT and digital division of Schwarz Group and offers impressive digital products and services that meet the high German data protection standards. With the aim of achieving the greatest possible digital sovereignty, Schwarz Digits provides the IT infrastructure and solutions for the extensive ecosystem of Schwarz Group’s companies and develops it for the future. Schwarz Digits' sovereign core services include Cloud, Cyber Security, Data and AI, Communication and Workspace. In addition, Schwarz Digits creates optimal conditions for the development of trend-setting innovations for end customers, companies and public sector organizations.

In the latest trading session, Zscaler (ZS - Free Report) closed at $143.55, marking a -3.98% move from the previous day. This change lagged the S&P 500's 0.28% loss on the day. Elsewhere, the Dow lost 1.09%, while the tech-heavy Nasdaq added 0.2%.

The stock of cloud-based information security provider has risen by 18.8% in the past month, leading the Computer and Technology sector's loss of 1.22% and the S&P 500's gain of 1.64%.

Analysts and investors alike will be keeping a close eye on the performance of Zscaler in its upcoming earnings disclosure. The company is forecasted to report an EPS of $1.09, showcasing a 22.47% upward movement from the corresponding quarter of the prior year. In the meantime, our current consensus estimate forecasts the revenue to be $877.19 million, indicating a 21.96% growth compared to the corresponding quarter of the prior year.

ZS's full-year Zacks Consensus Estimates are calling for earnings of $4.14 per share and revenue of $3.33 billion. These results would represent year-over-year changes of +26.22% and +24.57%, respectively.

Investors should also take note of any recent adjustments to analyst estimates for Zscaler. Such recent modifications usually signify the changing landscape of near-term business trends. Hence, positive alterations in estimates signify analyst optimism regarding the business and profitability.

Our research suggests that these changes in estimates have a direct relationship with upcoming stock price performance. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system.

The Zacks Rank system, which varies between #1 (Strong Buy) and #5 (Strong Sell), carries an impressive track record of exceeding expectations, confirmed by external audits, with stocks at #1 delivering an average annual return of +25% since 1988. The Zacks Consensus EPS estimate has moved 9.1% higher within the past month. At present, Zscaler boasts a Zacks Rank of #3 (Hold).

Looking at its valuation, Zscaler is holding a Forward P/E ratio of 36.14. For comparison, its industry has an average Forward P/E of 50.32, which means Zscaler is trading at a discount to the group.

It is also worth noting that ZS currently has a PEG ratio of 2.47. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. ZS's industry had an average PEG ratio of 3.31 as of yesterday's close.

The Security industry is part of the Computer and Technology sector. With its current Zacks Industry Rank of 169, this industry ranks in the bottom 32% of all industries, numbering over 250.

The strength of our individual industry groups is measured by the Zacks Industry Rank, which is calculated based on the average Zacks Rank of the individual stocks within these groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1.

Don't forget to use Zacks.com to keep track of all these stock-moving metrics, and others, in the upcoming trading sessions.

Zscaler's (ZS +0.72%) stock price has dipped by roughly 34% year to date as continued net losses and a decelerating revenue growth rate weigh down on the cybersecurity stock. The company may get a boost as its cybersecurity solutions can safeguard artificial intelligence (AI) agents, which are expected to become more popular. However, there are meaningful hurdles that can prolong this correction.

Image source: Getty Images.

Zscaler's revenue growth has been steadily decelerating When a stock delivers substantial year-over-year revenue growth, it's easier to look over high net losses and focus on the bullish thesis. However, those same losses become more central to a stock analysis once revenue growth slows.

That has been the case for Zscaler in recent years. It has a five-year annualized revenue growth rate of 44% that drops to 34.8% for its three-year CAGR. Zscaler only reported 25% year-over-year revenue growth in its fiscal 2026 third quarter. It's a sign that growth has slowed down considerably, and the company remains unprofitable.

Zscaler mentioned in its Q3 FY26 press release that it is attracting new customers and expanding relationships with existing ones while hinting at a focus on "driving profitable growth across multiple vectors."

Profitability may be on the way soon, based on the company only posting a -1.6% net profit margin in its fiscal 2026 third quarter. However, the excitement about profitability may be muted by a steady trend of slower revenue growth.

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It's really hard to value Zscaler, but guidance suggests the overall picture will worsen Investors can't use the P/E ratio to assess Zscaler since it is unprofitable. The stock has a 6.6 price-to-sales ratio, which is much lower than those of CrowdStrike and Fortinet. It's not the best metric to use, since a company on the verge of bankruptcy can have a price-to-sales ratio below 1, but other valuation metrics like the P/E and PEG ratios aren't suitable at this stage.

While Zscaler has a healthy balance sheet that includes $4.6 billion in total current assets, its long-term outlook isn't great. Although the company touted agentic AI as a meaningful opportunity, guidance suggests that revenue deceleration will continue.

Zscaler anticipates 16% to 17% year-over-year revenue growth in fiscal 2027. It's a far cry from the 44% annualized revenue growth rate over the past five years. The company's financial growth rates are well removed from what they were when Zscaler commanded a price of almost $400 per share back in 2021.

Decelerating growth, combined with guidance suggesting more of the same, doesn't mean the AI opportunity is as groundbreaking as the company suggests. Artificial intelligence has been a major catalyst for many companies, but the numbers suggest this type of transformation isn't currently underway at Zscaler.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CrowdStrike, Fortinet, and Zscaler. The Motley Fool has a disclosure policy.

Key Takeaways Z-Flex generated more than $480M in TCV in Q3, rising more than 60% sequentially for Zscaler.Zscaler saw ARR rise 25% YoY to over $3.5B, while remaining performance obligations grew 30% to $6.5B.Z-Flex helped large clients increase spending by adding new modules, like AI Protect and Zero Trust Branch. Zscaler Inc.’s (ZS - Free Report) Z-Flex program is emerging as an important growth driver for the company. The offering allows customers to make multi-year commitments while giving them the flexibility to activate or switch products without going through a new purchasing process. This approach is helping Zscaler increase customer spending, improve visibility and strengthen long-term relationships.

The momentum behind Z-Flex accelerated during the third quarter of fiscal 2026. Z-Flex generated more than $480 million in the total contract value (TCV) during the quarter, representing growth of more than 60% sequentially. Over the last 12 months, Zscaler delivered more than $1 billion in Z-Flex TCV with an average contract duration of four years.

The program is also encouraging broader platform adoption. Several large customers expanded their use of existing products while adding new modules, including AI Protect and Zero Trust Branch solutions. During the last earnings call, management revealed that one large financial customer increased annual spending by nearly 50%, while another enterprise customer expanded its spending by 60%.

The strong uptake of Z-Flex is contributing to Zscaler’s overall growth. During the third quarter, annual recurring revenues (ARR) rose 25% year over year to more than $3.5 billion. Remaining performance obligations increased roughly 30% to $6.5 billion, providing strong revenue visibility. Total third-quarter revenues rose 25% year over year to $850.4 million.

Management believes Z-Flex shortens sales cycles, increases upselling opportunities and improves customer retention. As enterprises continue consolidating cybersecurity vendors and adopting broader Zero Trust platforms, Z-Flex could remain a meaningful catalyst for Zscaler’s long-term growth and revenue expansion. The Zacks Consensus Estimate for Zscaler’s fiscal 2026 revenues is pegged at $3.33 billion, indicating 24.6% year-over-year growth.

How Do ZS’ Rivals Compare in Flexible Customer Contracts?Two major cybersecurity companies competing with Zscaler in long-term customer engagements are Palo Alto Networks, Inc. (PANW - Free Report) and CrowdStrike Holdings, Inc. (CRWD - Free Report) .

Palo Alto Networks has successfully pushed its platformization strategy, encouraging customers to consolidate multiple security products under one vendor. In the third quarter of fiscal 2026, the company’s next-generation security ARR jumped 60% year over year to $8.1 billion, reflecting strong customer commitment to multi-product contracts.

Palo Alto Networks’ bundled offerings across network security, cloud security and security operations help improve customer retention and expand spending over time. This strategy shares similarities with Zscaler’s Z-Flex program, which promotes broader platform adoption through multi-year agreements.

CrowdStrike has also benefited from higher customer consolidation trends. The company’s ARR rose 24% year over year to $5.5 billion in the first quarter of fiscal 2027. More customers continue adopting multiple Falcon modules, helping expand contract values and increase retention rates. CrowdStrike’s subscription-based model provides recurring revenue visibility similar to Zscaler’s long-term commitments.

While both competitors, Palo Alto Networks and CrowdStrike, focus on platform expansion, Zscaler’s Z-Flex program offers customers additional flexibility to activate or swap products during contract periods, which strengthens its upselling opportunities and long-term revenue growth.

Zscaler’s Price Performance, Valuation & EstimatesZS shares have plunged 44.8% year to date against the Zacks Security industry’s rise of 43.2%.

Zscaler YTD Price Return Performance
Image Source: Zacks Investment Research

From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 5.22, significantly below the industry’s average of 15.65.

Zscaler Forward 12-Month P/S Ratio
Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Zscaler’s fiscal 2026 and 2027 earnings implies year-over-year increases of 25.9% and 10.9%, respectively. Estimates for fiscal 2026 and 2027 have been revised upward over the past 30 days.

Image Source: Zacks Investment Research

Zscaler currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.