- Accelerated ARR Growth Annual recurring revenue (ARR) surged 26% YoY to $3.2 billion, with AI security ARR growing over 80% YoY, surpassing $400 million three quarters ahead of target.
- Strong Financial Performance Q1 revenue hit $788 million (20% YoY growth), gross margin at 79.9%, and free cash flow margin of 52%, with FY2026 ARR guidance of $3.698–3.718 billion (22.7–23.3% YoY growth).
- Emerging Growth Pillars Outperform AI security, Zero Trust Everywhere, and Data Security Everywhere drove 80%+ ARR growth, with emerging areas ($1 billion ARR) outpacing core ICPA ($2 billion ARR) in growth.
- Customer Expansion and Flexibility Zero Trust customers reached 450, with 4,400 enterprise-class customers and 10% penetration, while Z Flex program drove 70% sequential booking growth, enhancing ARR visibility.
Growth Pillars Driving Performance
The company's three growth pillars - AI security, Zero Trust Everywhere, and Data Security Everywhere - were the key drivers of top-line performance. AI security annual recurring revenue (ARR) grew over 80% year-over-year, exceeding the FY'26 target of $400 million ARR three quarters earlier than expected. Zero Trust Everywhere now has over 450 enterprise customers, achieving the goal three quarters ahead of target.
Guidance and Outlook
Zscaler provided guidance for Q2 and full-year FY2026, with revenue expected to be $797-799 million and $3.282-3.301 billion, respectively. ARR is expected to be $3.698-3.718 billion, reflecting year-over-year growth of 22.7-23.3%. The company plans to invest aggressively for long-term growth and profitability, with a free cash flow margin expected to be 20-26.5% for the full year.
Valuation and Growth Prospects
With a P/S Ratio of 13.81 and an expected revenue growth rate of 23.8% next year, the company's valuation appears reasonable. However, the P/E Ratio of -969.61 and EV/EBITDA of 764.82 indicate that the market has high expectations for future growth. Analysts will be watching closely to see if Zscaler can continue to deliver on its growth promises.
Operational Highlights
The company's Zero Trust Branch has exceeded 450 customers, with many starting small and expanding to larger deals. Zscaler's data security portfolio, combined with AI-powered data classification, provides a strong foundation for detecting and preventing data loss. The integration of Red Canary's technology with Zscaler's Zero Trust Exchange enables a closed-loop feedback system, providing a clear differentiator in the market.
Customer Adoption and Traction
Customers are shifting from traditional firewalls to a Zero Trust approach, driven by the need for better cyber protection, cost savings, and simplified operations. The company's Zero Trust Cloud solution eliminates the need for firewalls and ACLs, making it easier to deploy and manage. This approach has led to strong interest and a growing pipeline, with 450 customers already on board.