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 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.
Publication Date: Mar -02
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.
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.
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.
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.
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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% |
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