From Yahoo Finance · · 1m 40s
Zscaler's growth engine strong, but ARR slowdown looms
The cybersecurity company posted solid results, but guidance suggests its growth rate could drop from 25% to the high teens.
In brief
The cybersecurity company posted solid results, but guidance suggests its growth rate could drop from 25% to the high teens. Zscaler's strong profitability and new product lines are impressive, but slowing ARR growth could trigger a stock re-rating if the market downgrades it from a 25% growth story to a high-teens…
Zscaler posts strong Q4 results
Fourth-quarter revenue jumped 25% year over year to $898.2 million, while ARR grew 25% to $3.77 billion. Organic ARR growth hit 20%, signaling healthy recurring revenue expansion.
“The momentum was evident as it delivered solid fourth-quarter and fiscal 2026 results on September 3.”
Profitability reaches record levels
Non-GAAP operating margin hit a record 24% in Q4, up from 22% for the full year. Net loss per share narrowed sharply to $0.02 from $0.11 a year earlier.
“non-GAAP operating margin reached a record high of 24% in the fourth quarter”
New growth areas beyond seats
Zscaler is expanding beyond traditional seat-based licensing into data security, AI security, and Zero Trust Everywhere. These new product lines are driving platform adoption and revenue diversification.
“The company's growth story is increasingly expanding beyond its traditional seat-based business”
ARR growth expected to slow
Fiscal 2027 ARR guidance of $4.396 to $4.426 billion implies growth of only 16.6% to 17.4%, down from 25% in the prior year. This slowdown could shift investor perception from a 25% growth company to a high-teens one.
“it implies growth of only 16.6% to 17.4%, suggesting potential slowing in ARR growth”
Intense competition from larger rivals
Zscaler faces stiff competition from Palo Alto Networks and CrowdStrike. Customers increasingly prefer consolidated security from a single supplier, putting Zscaler at risk of losing major deals.
“the company is facing stiff competition from formidable competitors, including Palo Alto Networks and CrowdStrike”
Hedge funds building positions
Hedge fund interest in Zscaler has grown to 52 funds as of Q2, up from 46 in Q1. Short interest remains modest at 3.85% of shares, suggesting bearish positioning is not elevated.
“As of the second quarter, 52 hedge funds held stakes in the company, a slight improvement from 46 hedge funds”
The short version
Zscaler's strong profitability and new product lines are impressive, but slowing ARR growth could trigger a stock re-rating if the market downgrades it from a 25% growth story to a high-teens one.
