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Zscaler: Zscaler's Q2 '26 Results Exceed Expectations with Strong Revenue Growth

Zscaler reported revenue of $816 million, a 26% year-over-year increase and a 4% sequential growth. The non-GAAP gross margin stood at 80.2%, and non-GAAP operating income reached $181 million, growing 29% year-over-year. Earnings per share (EPS) came in at $1.01, beating estimates of $0.89. The company's free cash flow margin was 36%, demonstrating its ability to generate cash from operations. The strong financial performance was driven by the company's three key pillars: AI Security, Zero Trust Everywhere, and Data Security Everywhere.

ZS

USD 146.99

-12.17%

A-Score: 4.7/10

Publication date: February 27, 2026

Full Report

Author: Analystock.ai

📋 Highlights
  • Revenue & ARR Growth: Q2 revenue hit $816M (+26% YoY), with total ARR reaching $3.4B (+25% YoY), driven by $156M net new ARR (+19% YoY).
  • Free Cash Flow & Margin Strength: 36% free cash flow margin, non-GAAP gross margin at 80.2%, and $181M non-GAAP operating income (+29% YoY).
  • Large Deal Momentum: Americas closed twice as many $1M+ deals YoY, with 728 customers generating >$1M ARR (18% YoY growth).
  • Guidance & Balance Sheet: Raised FY26 ARR guidance to $3.73B–$3.745B (+24% YoY), $3.5B in cash/cash equivalents, and $1.7B debt.
  • Strategic Growth Pillars: AI Security, Zero Trust Everywhere (550 customers, up from 130 YoY), and Data Security Everywhere driving 2x–3x ARR uplifts.

Business Growth Drivers

The growth was largely driven by large deals, with the Americas closing twice the number of $1 million-plus deals compared to the previous year. The company now has 728 customers generating over $1 million in ARR, growing 18% year-over-year. Zscaler's AI Security solutions, including AI Protect, are gaining traction, securing the use of AI and agentic operations. The company's Zero Trust architecture is also seeing significant adoption, contributing to the revenue growth.

Guidance and Outlook

Zscaler is confident in its outlook for the second half of fiscal 2026 and has increased its guidance across the board. The company expects revenue growth of 23% year-over-year, gross margin of approximately 80%, and operating profit growth. ARR is expected to be between $3.730 billion and $3.745 billion, up approximately 24% year-over-year. The midpoint of ARR guidance was raised by $30 million, driven by organic net new growth and the acquisition of Red Canary.

Valuation and Growth Prospects

With a P/S Ratio of 7.81 and an EV/EBITDA of 175.03, the market is pricing in significant growth expectations. Analysts estimate next year's revenue growth at 19.8%, indicating a high growth trajectory. The company's strong track record of executing its strategy, combined with its expanding product offerings, such as AI Security and Zero Trust Everywhere, positions it well for continued growth. The recent acquisition of SquareX and Red Canary is expected to further enhance its capabilities and expand its total addressable market.

Operational Highlights

The company's operational performance was marked by double-digit sales productivity growth, record pipeline conversion, and strong momentum with its Z-Flex program, generating over $290 million in TCV, up 65% quarter-over-quarter. The ARR ramp for Z-Flex deals is similar to non-Z-Flex deals, but with a longer-term commitment, typically 3-5 years. The average Z-Flex deal has an 8-figure TCV commitment, indicating the company's ability to secure large, strategic partnerships.

Zscaler's A-Score