Last Update 15 Dec 25

ZS: Future Returns Will Rely On Expanding Demand For Zero Trust Security

Analysts have modestly trimmed our Zscaler price target by a low single digit percentage to reflect slightly higher discount rates and a more balanced interpretation of Q1 results. Strong ARR growth and traction in emerging products were partially offset by mixed guidance, underwhelming bottom line performance, and uneven disclosure around inorganic contributions.

Analyst Commentary

Bullish analysts remain constructive on Zscaler, viewing the recent quarter as supportive of the long term growth thesis despite modest target resets. They highlight solid execution on ARR, strong contribution from newer offerings, and an improving alignment with secular security and AI trends as key underpinnings for valuation support.

Bearish analysts, or those trimming targets, focus more on near term noise around guidance, inorganic contributions to ARR, and the risk that expectations have run ahead of visibility. This has led to a more balanced risk reward view even as ratings largely stay positive.

Bullish Takeaways

Bullish analysts emphasize that organic ARR growth in Q1 was described as "very decent" and, even after backing out inorganic contributions, points to a healthy net new ARR trajectory that supports Zscaler's growth compounder narrative.
The breadth of emerging product momentum, including Zero Trust Everywhere, AI Security, and Data Security, is seen as a key incremental growth engine that can extend the duration of elevated growth and justify premium valuation multiples.
Several firms raised price targets and reiterated positive ratings, arguing that Zscaler's revenue beat and upward revision to full year guidance demonstrate solid execution against already high expectations.
Across security and networking, bullish analysts view Zscaler as well positioned to benefit from rising enterprise security budgets and AI driven infrastructure changes, which could sustain above peer growth even if sector volatility remains elevated.

Bearish Takeaways

Bearish analysts, while generally maintaining positive ratings, reduced price targets on concerns that the stock has already outperformed peers and that near term upside may be limited until investors receive more concrete data on ARR trends.
Uneven disclosure around inorganic ARR contributions and the lack of clear quantification for recent acquisitions introduces uncertainty into growth quality, leading to more conservative valuation frameworks.
Some see the Q1 guide and medium term outlook as only modestly improved relative to expectations, arguing that the bar for further rerating is higher given rich starting valuation and heightened AI driven crowding within software.
A subset of cautious views suggests the potential for tactical pullbacks around seasonally slower quarters or if incremental data fails to confirm the current growth acceleration implied by recent target increases.

What's in the News

Peraton and Zscaler formed a strategic partnership to deliver integrated Zero Trust based, cloud native security and network transformation solutions for mission critical government and enterprise environments, aiming to cut IT complexity, improve user experience, and lower total cost of ownership (Client Announcements).
Orca Security expanded its partnership with Zscaler by integrating Zscaler Private Access with Orca's AI powered cloud risk intelligence to provide unified visibility across access and workloads, reducing alert fatigue and strengthening Zero Trust posture (Client Announcements).
TPx selected Zscaler as the core Security Service Edge platform for its next generation SASE strategy, and plans a Managed SASE solution launch in early 2026 to unify SD WAN, secure web access, Zero Trust Network Access, and cloud app protection (Client Announcements).
Zscaler issued fiscal 2026 guidance calling for ARR of about 3.7 billion dollars and revenue of roughly 3.28 billion to 3.30 billion dollars, with second quarter revenue expected at 797 million to 799 million dollars (Corporate Guidance).
Zscaler unveiled new Zscaler Digital Experience innovations that use real time telemetry to cut issue detection times by up to 98 percent, reroute around ISP bottlenecks, and improve device level visibility to reduce digital downtime and extend hardware lifecycles (Product Related Announcements).

Valuation Changes

Fair Value Estimate remained unchanged at 328.22 dollars per share, indicating no net impact from the updated assumptions.
Discount Rate has risen slightly from 8.53 percent to 8.57 percent, modestly increasing the required return applied in the valuation model.
Revenue Growth expectations have inched up from approximately 20.25 percent to 20.27 percent, reflecting a marginally more optimistic top line outlook.
Net Profit Margin has edged down slightly from about 4.02 percent to 4.02 percent (4.015 percent), implying a very small reduction in long term profitability assumptions.
Future P/E multiple has ticked up marginally from 379.0x to 379.9x, suggesting a slightly higher valuation being ascribed to expected earnings.

Growing adoption of advanced cloud security solutions and platform innovation is boosting upsell opportunities, long-term customer value, and expanding Zscaler's market share.
Rapid response to AI-driven threats and shifting industry trends supports sustained revenue growth, higher margins, and increasing operating efficiency through automation and scale.
Growing competition, talent shortages, and aggressive expansion are pressuring Zscaler's profitability, margins, and long-term market share in an evolving cybersecurity landscape.

Catalysts

About Zscaler

Operates as a cloud security company worldwide.What are the underlying business or industry changes driving this perspective?

Accelerating customer adoption of Zero Trust Everywhere and Data Security Everywhere solutions, particularly among Global 2000 and Fortune 500 firms, is fueling large upsell deals and higher ARR per customer, which should drive sustained double-digit revenue growth and improve net retention rates.
Explosive growth in AI/ML traffic and emerging threats is creating new security challenges that Zscaler is rapidly addressing with differentiated AI security and agentic operations products, positioning the company to capture a rising share of incremental cyber budgets and expand recurring ARR over the long term.
The transition away from legacy security appliances (firewalls, SD-WAN) in favor of unified cloud-delivered security architectures is gaining momentum across key verticals like retail and manufacturing, supporting a multi-year replacement cycle that will boost platform adoption, revenue, and margins.
Strategic platform innovation and programs like Z-Flex are driving broader product adoption within existing accounts and enabling larger, multi-year deals, increasing total contract value and supporting higher future operating margins through scale.
Ongoing investments in go-to-market and operational scale, combined with improving automation and integration from recent acquisitions (e.g., Red Canary), are expected to unlock further operating leverage, resulting in sustained improvement of operating and free cash flow margins.

Zscaler Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Zscaler's revenue will grow by 20.5% annually over the next 3 years.
Analysts assume that profit margins will increase from -1.6% today to 3.0% in 3 years time.
Analysts expect earnings to reach $139.8 million (and earnings per share of $0.81) by about September 2028, up from $-41.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $357.1 million in earnings, and the most bearish expecting $-44.5 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 498.3x on those 2028 earnings, up from -1059.6x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 2.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Zscaler Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Increasing integration of security capabilities by public cloud providers (like AWS, Azure, Google Cloud) could erode Zscaler's competitive advantage and reduce its total addressable market, which would pressure both revenue growth and future earnings.
Intensifying competition from established cybersecurity vendors and cloud-native platform companies may drive pricing pressure, force higher sales & marketing spend, and compress Zscaler's gross and operating margins over the long term.
The rapid pace of new product launches focused on growth over profitability-such as in AI security and Zero Trust Branch-may sustain lower gross margins for longer periods, delaying improvements in net margins and affecting earnings quality.
The ongoing global cybersecurity talent shortage and high reliance on stock-based compensation to attract and retain specialized employees could significantly raise operating costs and dilute future earnings per share and share price appreciation.
Market consolidation through M&A or expansion of bundled security offerings by larger players could limit Zscaler's stand-alone market share, weaken pricing power, and ultimately put long-term revenue and net retention rates at risk.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $324.659 for Zscaler based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $385.0, and the most bearish reporting a price target of just $251.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $139.8 million, and it would be trading on a PE ratio of 498.3x, assuming you use a discount rate of 8.5%.
Given the current share price of $282.29, the analyst price target of $324.66 is 13.1% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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