Zscaler Reports Strong Q3 Earnings but Mixed Guidance Leads to Stock Drop
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 1 day ago
0mins
Source: seekingalpha
- Strong Earnings Performance: Zscaler reported an adjusted earnings per share of $1.08 for Q3 ending April 30, with revenue rising 25% year-over-year to $850.5 million, surpassing analyst expectations of $1.01 and $835.3 million, indicating robust performance in the cybersecurity sector.
- Annual Recurring Revenue Growth: The company achieved annual recurring revenue of $3.525 billion, reflecting significant growth compared to the previous year, showcasing its ability to attract new customers and expand its existing client base, which suggests strong long-term growth potential.
- Mixed Future Guidance: While Zscaler expects adjusted earnings per share between $1.08 and $1.09, exceeding the $1.03 anticipated by analysts, its revenue forecast of $875 million to $878 million falls short of the $878.6 million expected, which may dampen investor confidence.
- Cash Flow and Spending Outlook: The company anticipates a free cash flow margin between 22.8% and 23.3%, down from a prior expectation of 26.5% to 27%, primarily due to increased capital expenditures, which could impact future financial flexibility.
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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: 126.410
Low
260.00
Averages
325.62
High
390.00
Current: 126.410
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 Shares Plunge 30% for Worst Day Ever Following Earnings Report
- Earnings Report Disappointment: Zscaler reported adjusted earnings of $1.08 per share and revenue of $850 million for the third quarter, surpassing expectations; however, its guidance for fiscal 2027 of only 16% to 17% year-over-year growth fell short of analyst estimates, leading to a 30% stock plunge.
- Leadership Changes Impact: The company lost two sales leaders during the quarter, and finance chief Kevin Rubin indicated that Zscaler is adopting a 'prudent approach' to guidance amid these transitions, which may undermine market confidence and future performance.
- Rising Capital Expenditures: Zscaler anticipates a 200 basis point increase in capital expenditures as a percentage of revenue for fiscal 2027, primarily due to memory shortages and rising costs, which will pressure profitability and further affect investor sentiment.
- Deteriorating Market Sentiment: Investor sentiment has soured towards cybersecurity stocks amid concerns that artificial intelligence could disrupt software business models; despite the rising threat landscape potentially increasing enterprise defense spending, Zscaler's stock remains under pressure.
See More
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- Executive Departures: The unexpected exit of two senior sales leaders during a critical slowdown period has heightened investor anxiety, raising doubts about the company's strategic execution and potentially undermining customer confidence and sales performance.
- Shifting Market Dynamics: Amid a macro backdrop, institutional investors continue to sell Zscaler shares to chase the rapid gains in the semiconductor sector, indicating a shift in market preference away from growth stocks, which may further pressure Zscaler's performance.
- Options Trading Strategy: Although Zscaler's risk reversal strategy limited losses to some extent, the incorrect market direction has forced investors to consider closing positions to preserve capital, highlighting the high-risk nature of the current trading environment.
See More
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- Undisclosed Executive Departures: The investigation focuses on whether Zscaler failed to timely disclose the departure of two key sales leaders who reported directly to Chief Revenue Officer Mike Rich, potentially impacting the company's sales strategy and market performance.
- Integration Issues: Zscaler is facing execution issues related to the integration with Red Canary, which may diminish the company's competitive edge in the market and affect future financial performance.
- Updated Financial Outlook: On May 26, 2026, Zscaler reported third-quarter results and provided an updated financial outlook for the fourth quarter; however, the ongoing investigation may negatively impact investor confidence.
See More
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- Significant Stock Drop: Zscaler's stock fell approximately 15% in after-hours trading following the release of Q4 guidance that was below Wall Street expectations, with the total decline exceeding 30% by midday on May 27, severely impacting investor confidence.
- Poor Financial Outlook: While Zscaler reported Q3 revenue of $850 million, a 25% year-over-year increase, its Q4 revenue and cash-flow-margin guidance fell short of analyst expectations, raising concerns about the company's future growth prospects.
- Executive Departures Impact: The simultaneous disclosure of senior sales leadership departures heightened investor concerns regarding management stability, prompting several Wall Street analysts to downgrade the stock the following morning.
- Surge in Trading Volume: Amid the stock's decline, trading volume surged to three to four times the 30-day average, indicating heightened market scrutiny and anxiety regarding Zscaler's future performance.
See More
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- Guidance Miss: Zscaler's Q4 revenue and cash-flow-margin guidance fell short of Wall Street expectations, causing the stock to drop approximately 15% in after-hours trading on May 26 and over 30% by midday on May 27, significantly undermining investor confidence.
- Strong Q3 Results: Despite reporting Q3 fiscal 2026 revenue of $850 million, a 25% year-over-year increase, and an ARR of $3.5 billion, concerns about future performance led to a sharp decline in stock price.
- Executive Departures: The simultaneous disclosure of senior sales leadership departures heightened market concerns regarding management stability, prompting several major Wall Street analysts to downgrade the stock the following morning.
- Surging Trading Volume: As the stock plummeted, trading volume surged to three to four times the 30-day average, indicating a strong investor reaction to the company's outlook, particularly against the backdrop of a broadly rallying cybersecurity sector, making Zscaler's decline more pronounced.
See More
Mixed Close for US Stocks as Oil Prices Plunge
- Market Performance: On Wednesday, the S&P 500 Index rose by 0.02%, the Dow Jones Industrial Average increased by 0.36% to a new record high, while the Nasdaq 100 fell by 0.09%, indicating a divergence in market sentiment amid enthusiasm for artificial intelligence and declining oil prices.
- Oil Price Fluctuations: Crude oil prices plummeted over 5% to a five-week low due to optimism surrounding a US-Iran peace deal, which eased inflation expectations and pushed the 10-year Treasury yield down to a 1.5-week low of 4.45%, providing support for the bond market.
- Mortgage Application Decline: US MBA mortgage applications fell by 8.5% for the week ending May 22, with the purchase mortgage sub-index down 0.4% and the refinancing sub-index down 18.1%, reflecting the dampening effect of high interest rates on housing demand, as the average 30-year fixed mortgage rate rose to 6.65%.
- Corporate Earnings Outlook: As of Wednesday, 83% of the 475 S&P 500 companies that reported Q1 earnings exceeded expectations, with projected earnings growth of 12% year-over-year, but excluding the technology sector, the growth is only 3%, indicating signs of overall earnings weakness.
See More
Zscaler Shares Plunge 30% for Worst Day Ever Following Earnings Report
- Earnings Report Disappointment: Zscaler reported adjusted earnings of $1.08 per share and revenue of $850 million for the third quarter, surpassing expectations; however, its guidance for fiscal 2027 of only 16% to 17% year-over-year growth fell short of analyst estimates, leading to a 30% stock plunge.
- Leadership Changes Impact: The company lost two sales leaders during the quarter, and finance chief Kevin Rubin indicated that Zscaler is adopting a 'prudent approach' to guidance amid these transitions, which may undermine market confidence and future performance.
- Rising Capital Expenditures: Zscaler anticipates a 200 basis point increase in capital expenditures as a percentage of revenue for fiscal 2027, primarily due to memory shortages and rising costs, which will pressure profitability and further affect investor sentiment.
- Deteriorating Market Sentiment: Investor sentiment has soured towards cybersecurity stocks amid concerns that artificial intelligence could disrupt software business models; despite the rising threat landscape potentially increasing enterprise defense spending, Zscaler's stock remains under pressure.
See More
Zscaler Shares Plunge After Disappointing Guidance
- Disappointing Guidance: Zscaler's earnings report showed a revenue and EPS beat; however, the fiscal 2027 guidance of only 16.5% growth fell significantly short of analyst expectations, leading to a sharp decline in stock price and reflecting market concerns about future growth.
- Executive Departures: The unexpected exit of two senior sales leaders during a critical slowdown period has heightened investor anxiety, raising doubts about the company's strategic execution and potentially undermining customer confidence and sales performance.
- Shifting Market Dynamics: Amid a macro backdrop, institutional investors continue to sell Zscaler shares to chase the rapid gains in the semiconductor sector, indicating a shift in market preference away from growth stocks, which may further pressure Zscaler's performance.
- Options Trading Strategy: Although Zscaler's risk reversal strategy limited losses to some extent, the incorrect market direction has forced investors to consider closing positions to preserve capital, highlighting the high-risk nature of the current trading environment.
See More
Zscaler Under Investigation for Possible Securities Fraud
- Investigation Launched: Ademi LLP is investigating Zscaler for possible securities fraud due to potentially inaccurate statements regarding its financial statements, business operations, and prospects, which could lead to investor losses.
- Undisclosed Executive Departures: The investigation focuses on whether Zscaler failed to timely disclose the departure of two key sales leaders who reported directly to Chief Revenue Officer Mike Rich, potentially impacting the company's sales strategy and market performance.
- Integration Issues: Zscaler is facing execution issues related to the integration with Red Canary, which may diminish the company's competitive edge in the market and affect future financial performance.
- Updated Financial Outlook: On May 26, 2026, Zscaler reported third-quarter results and provided an updated financial outlook for the fourth quarter; however, the ongoing investigation may negatively impact investor confidence.
See More
Zscaler Issues Weak Q4 Guidance, Stock Plummets Over 30%
- Significant Stock Drop: Zscaler's stock fell approximately 15% in after-hours trading following the release of Q4 guidance that was below Wall Street expectations, with the total decline exceeding 30% by midday on May 27, severely impacting investor confidence.
- Poor Financial Outlook: While Zscaler reported Q3 revenue of $850 million, a 25% year-over-year increase, its Q4 revenue and cash-flow-margin guidance fell short of analyst expectations, raising concerns about the company's future growth prospects.
- Executive Departures Impact: The simultaneous disclosure of senior sales leadership departures heightened investor concerns regarding management stability, prompting several Wall Street analysts to downgrade the stock the following morning.
- Surge in Trading Volume: Amid the stock's decline, trading volume surged to three to four times the 30-day average, indicating heightened market scrutiny and anxiety regarding Zscaler's future performance.
See More
Zscaler Stock Plummets 30% After Q4 Guidance Misses Expectations
- Guidance Miss: Zscaler's Q4 revenue and cash-flow-margin guidance fell short of Wall Street expectations, causing the stock to drop approximately 15% in after-hours trading on May 26 and over 30% by midday on May 27, significantly undermining investor confidence.
- Strong Q3 Results: Despite reporting Q3 fiscal 2026 revenue of $850 million, a 25% year-over-year increase, and an ARR of $3.5 billion, concerns about future performance led to a sharp decline in stock price.
- Executive Departures: The simultaneous disclosure of senior sales leadership departures heightened market concerns regarding management stability, prompting several major Wall Street analysts to downgrade the stock the following morning.
- Surging Trading Volume: As the stock plummeted, trading volume surged to three to four times the 30-day average, indicating a strong investor reaction to the company's outlook, particularly against the backdrop of a broadly rallying cybersecurity sector, making Zscaler's decline more pronounced.
See More
Mixed Close for US Stocks as Oil Prices Plunge
- Market Performance: On Wednesday, the S&P 500 Index rose by 0.02%, the Dow Jones Industrial Average increased by 0.36% to a new record high, while the Nasdaq 100 fell by 0.09%, indicating a divergence in market sentiment amid enthusiasm for artificial intelligence and declining oil prices.
- Oil Price Fluctuations: Crude oil prices plummeted over 5% to a five-week low due to optimism surrounding a US-Iran peace deal, which eased inflation expectations and pushed the 10-year Treasury yield down to a 1.5-week low of 4.45%, providing support for the bond market.
- Mortgage Application Decline: US MBA mortgage applications fell by 8.5% for the week ending May 22, with the purchase mortgage sub-index down 0.4% and the refinancing sub-index down 18.1%, reflecting the dampening effect of high interest rates on housing demand, as the average 30-year fixed mortgage rate rose to 6.65%.
- Corporate Earnings Outlook: As of Wednesday, 83% of the 475 S&P 500 companies that reported Q1 earnings exceeded expectations, with projected earnings growth of 12% year-over-year, but excluding the technology sector, the growth is only 3%, indicating signs of overall earnings weakness.
See More
