Zscaler Q4 Earnings Beat Estimates, Revenues Surge 25% Y/Y

Zscaler, Inc. ZS reported fourth-quarter fiscal 2026 non-GAAP earnings of $1.19 per share, up 33.7% year over year. The figure beat the Zacks Consensus Estimate by 9.2%.

Revenues increased 24.9% year over year to $898.2 million, topping the consensus estimate by 2.4%. Results reflected broad-based geographic growth, rising platform adoption and AI-related demand. Annual recurring revenue (“ARR”) increased 25% to $3.771 billion.

Zscaler ARR Momentum Accelerates

Total net new ARR was $246 million in the fiscal fourth quarter, up 24% year over year. Excluding Red Canary, net new ARR was $232 million, rising 17%, while total ARR, excluding the acquisition, increased 20% to $3.63 billion. Red Canary exited the fiscal fourth quarter with $141 million in ARR.

Revenue growth was broad-based geographically. The Americas generated 57% of revenues and grew approximately 30% year over year. EMEA contributed 27% and increased about 17%, while the Asia Pacific and Japan represented 16% and grew 23%. Remaining performance obligations rose approximately 27% to $7.4 billion, with about 45% classified as current.

Zscaler Broadens Platform Adoption

Non-seat-based metered usage solutions contributed approximately 30% of new and upsell ACV (annual contract value) in both the quarter and fiscal 2026. ARR tied to these offerings grew more than 100% year over year as the platform expanded across branches, workloads, AI applications and AI agents.

Security for AI bookings increased more than 50% sequentially in the fiscal fourth quarter. Z-Flex generated more than $770 million in total contract value, up more than 60% quarter over quarter. Zscaler also exited the fourth quarter with more than 950 Zero Trust Everywhere enterprises, up from above 700 in the third quarter and more than 350 at the end of fiscal 2025.

ZS Enterprise Traction Strengthens

Zscaler ended the fiscal fourth quarter with 785 customers generating more than $1 million in ARR, up 18% year over year. Customers producing more than $100,000 in ARR increased 20% to 4,182, while the number of customers with more than $10 million in ARR nearly doubled from the prior-year period.

Large-deal activity also reached a record level, with the highest number of $1-million-plus new ACV deals in a quarter. During the earnings call, management stated that sales productivity increased at a double-digit rate and reached an all-time quarterly high, reflecting improved execution under its account-centric sales model.

ZS Margins Expand Despite Higher Investment

The non-GAAP gross margin was 80.2% compared with 79.3% in the year-ago quarter. Zscaler noted that the prior-year period included a one-time private-cloud deployment for a government customer that carried a lower-margin hardware component.

Non-GAAP operating income increased 37% year over year to $218.4 million. The operating margin expanded 220 basis points to 24.3%. For fiscal 2026, the non-GAAP operating margin was 22.9%, up 120 basis points year over year.

ZS Cash Flow Faces Capex Pressure

Zscaler ended the quarter with $3.5 billion in cash, cash equivalents and short-term investments and $1.7 billion in debt. The operating cash flow was $279.3 million, while the free cash flow totaled $60.8 million, representing 7% of revenues. In fiscal 2026, it generated an operating cash flow and a free cash flow of $1.13 billion and $779.1 million, respectively.

Capital expenditure reached $199.8 million in the fourth quarter and $277.3 million in fiscal 2026 as ZS accelerated certain data-center equipment purchases amid higher prices and tighter availability for memory, storage and processors. The company expects capital expenditure to remain elevated in fiscal 2027 and plans a workforce restructuring affecting approximately 3% of employees, with charges of $30-$33 million.

Zscaler Issues FY27 Outlook

For the first quarter of fiscal 2027, Zscaler expects revenues of $935-$939 million, implying 19% year-over-year growth. Non-GAAP earnings are projected at $1.15-$1.16 per share, with non-GAAP operating income of $215-$217 million and an operating margin of 23%.

For fiscal 2027, management projects revenues of $3.908-$3.938 billion, suggesting growth of 16.6-17.5%, and ARR of $4.396-$4.426 billion, implying growth of 16.6-17.4%. Non-GAAP earnings are expected at $4.86-$4.90 per share, while the free cash flow margin is forecast at 23-23.5%.

ZS Zacks Rank & Stocks to Consider

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

Some better-ranked stocks worth considering in the broader Zacks Security industry are Fortinet FTNT, Qualys QLYS and Palo Alto Networks PANW. Fortinet and Qualys each carry a Zacks Rank #1 (Strong Buy) at present, and Palo Alto Networks has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Fortinet’s 2026 earnings is pegged at $3.40 per share, up 8.3% over the past 60 days, indicating a year-over-year rise of 23.2%. Fortinet shares have surged 96.9% YTD.

The Zacks Consensus Estimate for Qualys’ 2026 earnings has moved northward by 2.5% to $7.76 per share over the past 30 days and calls for a year-over-year increase of 9.8%. Qualys shares have jumped 31.2% YTD.

The Zacks Consensus Estimate for Palo Alto Networks’ fiscal 2027 earnings has been revised upward by 2 cents to $4.11 per share over the past 30 days, implying a year-over-year increase of 7%. Palo Alto Networks shares have risen 80% YTD.

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