Investors are awaiting the fourth-quarter earnings release of cybersecurity firm Zscaler (ZS), which is scheduled for Sept. 3, after the market closes. Ahead of that, investors have lifted the company’s stock, expecting the earnings to provide tailwinds.
Cybersecurity spending is expected to be a priority in this era of artificial intelligence (AI). Recently, a series of AI hacking incidents brought the importance of cybersecurity to the forefront. Therefore, there’s a chance that while chips and data centers were the biggest beneficiaries of the first wave of the AI boom, cybersecurity could steal that spot in the next wave and experience a spending boom.
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Zscaler is positioning AI as a major growth opportunity by expanding its Zero Trust Exchange to secure agentic AI. Recently, the company partnered with IT solutions provider Carahsoft to extend the Zero Trust Exchange platform into the U.S. small- and medium-sized business (SMB) and mid-market segments.
Ahead of the anticipated earnings, let’s take a closer look at Zscaler.
About Zscaler Stock
Zscaler is a cloud-based cybersecurity company that helps organizations secure users, applications, devices, and data across distributed, hybrid, and cloud environments. Its operations are built around a global security cloud that delivers zero-trust access, secure internet and private-application connectivity, cloud workload protection, data-loss prevention, and digital-experience monitoring. It has a market capitalization of $28.84 billion.
Rather than relying primarily on traditional network-perimeter appliances, Zscaler provides security services through a software-based platform designed to inspect and protect traffic closer to users and applications. The company serves enterprises, government agencies, and other organizations worldwide through subscription-based products and services. Zscaler is headquartered in San Jose, California.
Zscaler’s stock has declined 36% over the past 52 weeks, largely because investors are concerned about slowing growth and rising competition in the cybersecurity industry. This year, the stock is down more than 20%. However, over the past month, it has gained 14% on improved sentiment as investors await its upcoming quarterly earnings. The shares had reached a 52-week low of $114.63 in April, but are up 50% from that level.
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Despite the selloff, Zscaler’s stock is still trading at an elevated valuation. On a forward-adjusted basis, its price-to-earnings (non-GAAP) ratio of 43.16x is higher than the industry average of 22.39x.
Zscaler Reported Strong Third-Quarter Results
For the third quarter of fiscal 2026 (quarter ended April 30), Zscaler’s revenue increased by 25% year-over-year (YOY) to $850.48 million. This broad-based growth was driven by an increase in customer count. Customers with more than $100,000 annual recurring revenue (ARR) grew at a 16% compound annual growth rate (CAGR) to 4,003, while customers with more than $1 million ARR increased at an 18% CAGR to 748.
Zscaler’s ARR growth was robust this quarter. ARR increased 25% YOY to $3.53 billion, including $166 million in net new ARR during the third quarter of fiscal 2026. Excluding the $127 million contribution from the Red Canary acquisition, ARR rose 21% to $3.40 billion, while net new ARR increased 14%.
Profits are also growing for Zscaler. Its non-GAAP operating margin climbed modestly from 22% to 23% YOY, while non-GAAP EPS climbed from $0.84 to $1.08. For the upcoming Q4 results, the company expects revenue of $875 million to $878 million, up about 22% YOY, and non-GAAP EPS of $1.08 to $1.09, up 21% to 22%. For fiscal 2026, Zscaler expects ARR of $3.74 billion to $3.75 billion, growth of approximately 24%, up slightly from previous guidance of $3.73 billion to $3.75 billion.
What Do Analysts Think About Zscaler’s Stock?
Recently, analysts at JPMorgan maintained an “Overweight” rating on Zscaler and raised the price target from $205 to $215. Analysts at Barclays raised the stock’s price target from $170 to $192, while keeping an “Overweight” rating, ahead of its Q4 report. The firm expects Zscaler to maintain its 16%-17% fiscal 2027 ARR growth forecast but questions whether net new ARR generation could be more heavily weighted toward the second half.
KeyBanc analyst Eric Heath maintained an “Overweight” rating on Zscaler’s stock and upwardly revised the price target to $210. KeyBanc’s bullish view is partially based on signs of an “improved security spend environment.”
Zscaler is still favored on Wall Street, with analysts awarding it a consensus “Strong Buy” rating overall. Of the 45 analysts covering the stock, 34 rate it a “Strong Buy,” two a “Moderate Buy,” and nine a “Hold.” The consensus price target of $197.77 represents a 10.9% upside from current levels. Moreover, the Street-high price target of $250 implies potential upside of 40%.
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On the date of publication, Anushka Dutta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
