The cybersecurity supplier turned in stable outcomes for its fiscal fourth quarter.
Zscaler is seeing robust momentum in newer vectors, resembling AI safety.
A more in-depth look factors to income development accelerating within the new fiscal yr.
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Whereas Zscaler(NASDAQ: ZS) inventory has had a robust run this yr, the momentum shifted after the cybersecurity firm reported its fiscal 2025 fourth-quarter outcomes following the shut of buying and selling Tuesday. Although the interval’s numbers had been good, and administration issued upbeat steering, the inventory sank 4% in Wednesday buying and selling. Nevertheless, even after the pullback, the inventory continues to be up by about 50% yr so far.
Let’s take a more in-depth have a look at the corporate’s outcomes and steering to see if Wednesday’s dip has created a shopping for alternative.
Whereas endpoint cybersecurity firms like CrowdStrike(NASDAQ: CRWD) and Palo Alto Networks(NASDAQ: PANW) are inclined to get extra consideration from buyers, Zscaler has carved out an necessary area of interest in a fast-growing a part of the cybersecurity sector. It is centered on zero belief safety, which is constructed round the concept no particular person person or machine ought to robotically be trusted, even when it was beforehand discovered to be reliable. That signifies that all customers’ entry to numerous platforms should be verified, licensed, after which repeatedly revalidated.
The rise of synthetic intelligence (AI) and AI brokers, in the meantime, has solely added to the complexity of the cyberthreat panorama. That is resulting in development in newer areas for Zscaler, together with AI Safety, Zero Belief In all places, and Knowledge Safety In all places, which mixed to exceed $1 billion in annual recurring income (ARR) in its fiscal This autumn, which ended July 31. The corporate can also be engaged on options to safe agent-to-agent and agent-to-application communications.
All of this helped Zscaler obtain sturdy income development. Within the quarter, its income climbed 21% yr over yr to $719.2 million, simply surpassing administration’s prior steering for income of between $705 million and $707 million. Adjusted earnings per share (EPS) climbed to $0.89 from $0.72 a yr earlier. That was additionally effectively forward of the corporate’s $0.79 to $0.80 forecast.
Zscaler generated working money movement of $250.6 million and free money movement of $171.9 million. It ended the interval with $3.6 billion in money and short-term investments on its steadiness sheet and $1.7 billion in debt within the type of convertible notes. It additionally accomplished the acquisition of managed detection and response specialist Pink Canary for an undisclosed sum proper after the quarter ended, in order that money place is more likely to come down.
Picture supply: Getty Pictures
Zscalar’s calculated billings — the quantity invoiced to clients, and a possible indicator of future income development — surged by 32% yr over yr to $1.2 billion. Deferred income — cash the corporate has obtained for providers that it has not but delivered — jumped by 30% to $2.47 billion. Each these metrics are indications that income development may start to speed up within the new fiscal yr.
Administration forecast that fiscal 2026 income could be between $3.265 billion and $3.284 billion, which might quantity to roughly 22% to 23% development. Pink Canary is projected so as to add about $90 million in income. ARR is projected to be between $3.676 billion and $3.698 billion, additionally equal to development of twenty-two% to 23%. The steering vary for adjusted EPS was $3.64 to $3.68.
For its fiscal 2026’s first quarter, Zscaler guided for income of between $772 million and $774 million with adjusted EPS of between $0.85 and $0.86.
Metric
Fiscal Q1 Steerage
Fiscal 2026 Steerage
Income
$772 million to $774 million
$3.265 billion to $3.284 billion
Income development
23%
22% to 23%
Adjusted EPS
$0.85 and $0.86
$3.64 to $3.68
Calculated billings
N/A
$3.676 billion to $3.698 billion
Knowledge supply: Zscaler.
Zscaler turned in a stable quarter, however what’s much more promising is that metrics resembling calculated billings and deferred income recommend that income development ought to properly speed up in fiscal 2026. Furthermore, whereas the corporate issued an upbeat outlook, traditionally, it tends to information very conservatively, so income development within the mid-to-high 20% vary is feasible.
The corporate is seeing good momentum in new development vectors, and the arrival of AI brokers may solely add to this. In the meantime, Zscaler has additionally taken a web page out of CrowdStrike’s e book by introducing its personal versatile cost program, Z-Flex. Such packages let clients pay for and deploy modules solely when wanted. Zscalar launched Z-Flex two quarters in the past and noticed a 50% enhance in flex billings in fiscal This autumn. This may very well be one other development driver for Zscaler.
Zscaler trades at this time at a ahead price-to-sales a number of of about 13 primarily based on analysts’ consensus estimates for the present fiscal yr. On condition that I feel its income development is more likely to be round 25%, I feel that may be a honest a number of, however the inventory is not within the cut price bin. General, given its valuation and prospects, I view Zscaler as a stable inventory to carry though I would want to be a brand new purchaser after an extra dip in worth.
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Geoffrey Seiler has no place in any of the shares talked about. The Motley Idiot has positions in and recommends CrowdStrike and Zscaler. The Motley Idiot recommends Palo Alto Networks. The Motley Idiot has a disclosure coverage.
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