Zscaler Reports Strong Earnings but Stock Plummets
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 3 days ago
0mins
Source: Fool
- Earnings Highlights: Zscaler reported $3.5 billion in annual recurring revenue (ARR) for Q3 FY2026, reflecting a 25% year-over-year growth, indicating sustained momentum in the zero-trust architecture sector despite increasing market concerns about future growth.
- Executive Departures Impact: The departure of two senior sales executives raised market concerns regarding the stability of Zscaler's sales team, prompting management to issue conservative revenue guidance for FY2027, projecting a slowdown in ARR growth to 16%, which directly contributed to a 31% stock drop post-earnings release.
- Competitive Market Pressure: Zscaler's price-to-sales (P/S) ratio stands at 6.6, close to its lowest since the 2018 IPO, and while it appears cheaper compared to competitors like Palo Alto Networks and CrowdStrike, the market's lack of confidence in its future growth may limit stock rebound potential.
- Customer Growth Momentum: By the end of Q3, Zscaler had 700 customers, more than tripling from the previous year, indicating a rapidly increasing demand for its zero-trust architecture, although the company faces challenges from sales team adjustments in the near term.
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Analyst Views on ZS
Wall Street analysts forecast ZS stock price to rise
30 Analyst Rating
24 Buy
6 Hold
0 Sell
Strong Buy
Current: 134.370
Low
260.00
Averages
325.62
High
390.00
Current: 134.370
Low
260.00
Averages
325.62
High
390.00
About ZS
Zscaler, Inc. is a cloud security company. The Company has developed a platform incorporating core security functionalities needed to enable fast and secure access to cloud resources based on identity, context and an organization's policies. Its Zscaler Zero Trust Exchange is a cloud-native platform that securely connects users, devices, applications and workloads, including artificial intelligence (AI) agents, without relying on hub-and-spoke network architecture and firewall-centric security. It delivers its solutions using a software-as-a-service (SaaS) business model and sells subscriptions to customers to access its cloud platform, together with related support services. Its services include Zscaler Internet Access (ZIA), Zscaler Private Access (ZPA), and Zscaler Digital Experience (ZDX). ZIA provides secure access to externally managed applications, including SaaS applications and internet destinations, regardless of device, location or network.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Zscaler Stock Plummets 32% After Q3 Earnings Miss Expectations
- Earnings Beat but Dim Outlook: Zscaler reported Q3 FY2026 results with $850.5 million in revenue and EPS exceeding expectations; however, the FY2027 revenue growth forecast of 16%-17% fell significantly short of the 19%-20% anticipated by analysts, triggering a 32% stock price drop.
- Divergent Analyst Sentiment: Despite the sharp decline, some analysts remain bullish, arguing that the market overreacted to conservative guidance, highlighting Zscaler's 36% free cash flow margin and 'Rule of 62' performance as indicators of a high-quality software business.
- Increased Competitive Pressure: Analysts noted that Zscaler faces intense competition from larger integrated cybersecurity vendors like Palo Alto Networks and Microsoft, and recent changes in sales leadership could impact customer acquisition and execution, raising investor concerns.
- Rising Capital Expenditures: Zscaler is increasing capital expenditures to support its AI-driven security initiatives and infrastructure expansion, which may pressure margins in the short term but is expected to strengthen its long-term position in Zero Trust architecture.
See More
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- Oil Price Surge: WTI crude oil prices rose over 2% to a 1.5-week high following the US interception of Iranian missiles and drones, heightening concerns about Middle Eastern stability and potentially affecting global supply chains and inflation expectations.
- Strong Employment Data: The US May ADP employment change increased by 122,000, surpassing expectations of 120,000, signaling signs of economic recovery that could support the stock market, although overall market performance remains influenced by other factors.
- Divergent Tech Stock Performance: While Marvell Technology rose over 3%, software and cybersecurity stocks faced significant declines, with Datadog and IBM dropping more than 6%, reflecting a lack of confidence in the tech sector despite some positive developments.
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- Rising Oil Prices: The WTI crude oil price surged over 1% to a 1.5-week high amid US-Iran clashes, which could further elevate inflation expectations and impact Federal Reserve monetary policy decisions.
- Strong Employment Data: The US May ADP employment change rose by 122,000, exceeding expectations of 120,000, indicating signs of economic recovery that may support the stock market, although the overall market remains weighed down by declines in software and cybersecurity stocks.
- Divergent Tech Stock Performance: Despite overall market pressure, Marvell Technology's stock rose over 7% following Nvidia CEO's prediction that it would reach a $1 trillion valuation, highlighting the supportive role of AI infrastructure spending on technology stocks.
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Zscaler Shares Plunge 23% Amid Investigation
- Stock Price Plunge: Zscaler's shares fell over 23% after the company guided for current-quarter revenue between $875 million and $878 million, missing analysts' expectations of $879 million, indicating market disappointment with the company's performance.
- Investor Rights Investigation: The Schall Law Firm is investigating whether Zscaler issued false or misleading statements that may have led investors to miss critical information, impacting their investment decisions.
- Severe Market Reaction: On the same day the news broke, Zscaler's stock opened down more than 30%, reflecting strong investor concerns about the company's future financial performance, which could undermine market confidence.
- Legal Consultation Opportunity: The Schall Law Firm encourages affected shareholders to reach out for free legal consultations, emphasizing the importance of protecting investor rights and potentially triggering more class action lawsuits.
See More
US Stocks Rise Slightly, Tech Stocks Show Strong Rebound
- Strong Labor Market: US April JOLTS job openings unexpectedly rose by 731,000 to a 23-month high of 7.618 million, surpassing expectations of 6.866 million, indicating labor market resilience and driving stock market gains, particularly in tech stocks.
- Tech Stock Surge: Hewlett-Packard Enterprise (HPE) shares surged over 25% after reporting Q2 adjusted EPS of 79 cents, significantly above the consensus estimate of 54 cents, and raising its full-year adjusted EPS forecast to $3.35-$3.45, reflecting robust growth in AI-driven demand.
- Market Volatility Factors: Despite overall market gains, initial declines occurred due to uncertainty surrounding a US-Iran ceasefire, with oil prices slightly down as President Trump stated negotiations with Iran are progressing “at a rapid pace,” potentially affecting investor sentiment.
- Software Stocks Under Pressure: Intuit (INTU) saw its stock drop over 10% after Goldman Sachs downgraded it to sell with a price target of $276, leading to a broader decline in the software sector, highlighting a divergence in market performance among tech stocks.
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Analysis of Nasdaq 100 Component Performance
- Strategy Stock Decline: Strategy stock is down 7.0% today, making it the worst performer in the Nasdaq 100, reflecting market concerns about its future growth and potentially impacting investor confidence.
- Year-to-Date Performance: Year-to-date, Strategy stock has decreased by approximately 2.7%, indicating its weak performance relative to the overall market, which may lead investors to reassess their portfolios.
- Other Component Movements: Qualcomm's stock is down 6.5% today, indicating pressure in the market that could affect its future market share and competitiveness.
- Zscaler Stock Increase: In contrast to other components, Zscaler's stock has risen by 7.6% today, suggesting a positive market outlook on its business prospects, which may attract more investor interest.
See More
Zscaler Stock Plummets 32% After Q3 Earnings Miss Expectations
- Earnings Beat but Dim Outlook: Zscaler reported Q3 FY2026 results with $850.5 million in revenue and EPS exceeding expectations; however, the FY2027 revenue growth forecast of 16%-17% fell significantly short of the 19%-20% anticipated by analysts, triggering a 32% stock price drop.
- Divergent Analyst Sentiment: Despite the sharp decline, some analysts remain bullish, arguing that the market overreacted to conservative guidance, highlighting Zscaler's 36% free cash flow margin and 'Rule of 62' performance as indicators of a high-quality software business.
- Increased Competitive Pressure: Analysts noted that Zscaler faces intense competition from larger integrated cybersecurity vendors like Palo Alto Networks and Microsoft, and recent changes in sales leadership could impact customer acquisition and execution, raising investor concerns.
- Rising Capital Expenditures: Zscaler is increasing capital expenditures to support its AI-driven security initiatives and infrastructure expansion, which may pressure margins in the short term but is expected to strengthen its long-term position in Zero Trust architecture.
See More
US Stock Indices Decline Amid Tensions and Economic Data
- Market Retreat: On Wednesday, the S&P 500 index fell by 0.74%, the Dow Jones Industrial Average dropped by 1.21%, and the Nasdaq 100 index decreased by 0.29%, indicating market vulnerability amid escalating US-Iran tensions that negatively impacted investor sentiment.
- Oil Price Surge: WTI crude oil prices rose over 2% to a 1.5-week high following the US interception of Iranian missiles and drones, heightening concerns about Middle Eastern stability and potentially affecting global supply chains and inflation expectations.
- Strong Employment Data: The US May ADP employment change increased by 122,000, surpassing expectations of 120,000, signaling signs of economic recovery that could support the stock market, although overall market performance remains influenced by other factors.
- Divergent Tech Stock Performance: While Marvell Technology rose over 3%, software and cybersecurity stocks faced significant declines, with Datadog and IBM dropping more than 6%, reflecting a lack of confidence in the tech sector despite some positive developments.
See More
US Stock Market Slides Amid Geopolitical Tensions
- Market Decline: The S&P 500 index fell by 0.40%, the Dow Jones Industrial Average dropped by 0.74%, and the Nasdaq 100 decreased by 0.08%, indicating market pressure due to escalating geopolitical tensions, particularly between the US and Iran.
- Rising Oil Prices: The WTI crude oil price surged over 1% to a 1.5-week high amid US-Iran clashes, which could further elevate inflation expectations and impact Federal Reserve monetary policy decisions.
- Strong Employment Data: The US May ADP employment change rose by 122,000, exceeding expectations of 120,000, indicating signs of economic recovery that may support the stock market, although the overall market remains weighed down by declines in software and cybersecurity stocks.
- Divergent Tech Stock Performance: Despite overall market pressure, Marvell Technology's stock rose over 7% following Nvidia CEO's prediction that it would reach a $1 trillion valuation, highlighting the supportive role of AI infrastructure spending on technology stocks.
See More
Zscaler Shares Plunge 23% Amid Investigation
- Stock Price Plunge: Zscaler's shares fell over 23% after the company guided for current-quarter revenue between $875 million and $878 million, missing analysts' expectations of $879 million, indicating market disappointment with the company's performance.
- Investor Rights Investigation: The Schall Law Firm is investigating whether Zscaler issued false or misleading statements that may have led investors to miss critical information, impacting their investment decisions.
- Severe Market Reaction: On the same day the news broke, Zscaler's stock opened down more than 30%, reflecting strong investor concerns about the company's future financial performance, which could undermine market confidence.
- Legal Consultation Opportunity: The Schall Law Firm encourages affected shareholders to reach out for free legal consultations, emphasizing the importance of protecting investor rights and potentially triggering more class action lawsuits.
See More
US Stocks Rise Slightly, Tech Stocks Show Strong Rebound
- Strong Labor Market: US April JOLTS job openings unexpectedly rose by 731,000 to a 23-month high of 7.618 million, surpassing expectations of 6.866 million, indicating labor market resilience and driving stock market gains, particularly in tech stocks.
- Tech Stock Surge: Hewlett-Packard Enterprise (HPE) shares surged over 25% after reporting Q2 adjusted EPS of 79 cents, significantly above the consensus estimate of 54 cents, and raising its full-year adjusted EPS forecast to $3.35-$3.45, reflecting robust growth in AI-driven demand.
- Market Volatility Factors: Despite overall market gains, initial declines occurred due to uncertainty surrounding a US-Iran ceasefire, with oil prices slightly down as President Trump stated negotiations with Iran are progressing “at a rapid pace,” potentially affecting investor sentiment.
- Software Stocks Under Pressure: Intuit (INTU) saw its stock drop over 10% after Goldman Sachs downgraded it to sell with a price target of $276, leading to a broader decline in the software sector, highlighting a divergence in market performance among tech stocks.
See More
Analysis of Nasdaq 100 Component Performance
- Strategy Stock Decline: Strategy stock is down 7.0% today, making it the worst performer in the Nasdaq 100, reflecting market concerns about its future growth and potentially impacting investor confidence.
- Year-to-Date Performance: Year-to-date, Strategy stock has decreased by approximately 2.7%, indicating its weak performance relative to the overall market, which may lead investors to reassess their portfolios.
- Other Component Movements: Qualcomm's stock is down 6.5% today, indicating pressure in the market that could affect its future market share and competitiveness.
- Zscaler Stock Increase: In contrast to other components, Zscaler's stock has risen by 7.6% today, suggesting a positive market outlook on its business prospects, which may attract more investor interest.
See More
