GICS Sector : Technology
Zscaler, Inc.operates as a cloud security company worldwide.The company provides Zscaler Internet Access solution that provides users, servers, operational technology, Internet of Things device secure access to externally managed applications, including software-as-a-service (SaaS) applications and Internet destinations; and Zscaler Private Access solution, which is designed to provide access to managed applications hosted internally in data centers, and private or public clouds.
Zscaler reported a robust Q1 FY2026, with revenue reaching $788 million, a 20% year-over-year increase. The company's gross margin stood at 79.9%, while the operating margin was 21.8%. Earnings per share (EPS) came in at $0.96, surpassing estimates of $0.856. The free cash flow margin was 52%, indicating a strong ability to generate cash from operations.
Publication Date: Nov -30
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.
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.
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.
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.
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.
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Zscaler's cloud-native platform drives growth through its secure, scalable, and agile solutions. The increasing adoption of cloud computing, digital transformation, and remote work fuels demand for Zscaler's subscription and support services.
A cloud-based security service that provides secure, fast, and reliable access to the internet and SaaS applications for remote users, branch offices, and cloud-based services.
A cloud-based service that provides secure, fast, and reliable access to internal applications and resources for remote users and branch offices.
A cloud-based service that provides visibility, security, and compliance for cloud infrastructure and applications.
A cloud-based service that provides runtime protection for cloud-native applications and workloads.
A cloud-based service that provides real-time visibility and analytics for digital experiences, including user experience, application performance, and network performance.
Zscaler's cloud-based security solutions are highly specialized and difficult to replicate, reducing the threat of substitutes.
While customers have some bargaining power due to the availability of alternative security solutions, Zscaler's strong brand reputation and high-quality products mitigate this threat.
Zscaler has a diversified supplier base, reducing dependence on individual suppliers and minimizing the bargaining power of suppliers.
While new entrants may pose a threat, Zscaler's established market presence, strong brand, and high barriers to entry reduce the likelihood of successful new entrants.
The cybersecurity market is highly competitive, with many established players and new entrants vying for market share, increasing the intensity of rivalry.
| Value | |
|---|---|
| Debt Weight | 62.54% |
| Debt Cost | 3.95% |
| Equity Weight | 37.46% |
| Equity Cost | 8.13% |
| WACC | 5.51% |
| Leverage | 166.95% |
Value: 2.2
Growth: 6.8
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Yield: 2.0
Momentum: 9.0
Volatility: 3.3
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