Cloud Security And Zero Trust Will Shape Future Success

Key Takeaways

• Adoption of remote work and cloud technologies is fueling demand for Zscaler's expanding security solutions, boosting recurring revenue and customer retention.
  
• Innovative product offerings and flexible pricing are driving deeper multi-product adoption, supporting stronger margins, billings visibility, and long-term revenue growth.
  
• Intensifying competition, cautious spending, operational complexity, evolving security models, and regulatory hurdles threaten Zscaler's growth, margins, and ability to scale internationally.

Catalysts

Operates as a cloud security company worldwide.

• Demand for Zscaler's cloud-native security platform is set to grow as remote and hybrid work environments become more entrenched, intensifying the need for zero trust architecture and secure access-directly boosting Zscaler's addressable market and recurring revenue growth.
  
• Continued broad adoption of cloud and AI technologies by enterprises is driving adoption of Zscaler's innovative data protection and AI security modules, which are already showing significantly higher ARR growth than the core platform, supporting faster revenue expansion and longer-term pricing power.
  
• The rollout and early success of flexible pricing and procurement programs (like Z-Flex) are catalyzing larger, longer-term contracts and deeper multi-product adoption, a trend likely to accelerate dollar-based net retention and provide enhanced near
• and long-term billings visibility.
  
• Zscaler's expanding cross-sell capabilities (e.g., Zero Trust for branches, cloud, and emerging SecOps/AI modules) are driving higher per-customer platform adoption, leading to persistent upsell opportunities and improved margin potential from growing economies of scale.
  
• Increasing enterprise prioritization of critical cybersecurity spending amid rising threat sophistication (with Zscaler's solutions positioned as strategic cost-savers versus legacy tools) is underpinning durable double-digit revenue growth and supporting potential for sustained net margin expansion.

Zscaler Future Earnings and Revenue Growth

Assumptions

• 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 -1.5% today to 3.2% in 3 years time.
• Analysts expect earnings to reach $140.7 million (and earnings per share of $1.49) by about July 2028, up from $-38.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $285 million in earnings, and the most bearish expecting $-187.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 465.5x on those 2028 earnings, up from -1164.6x today. This future PE is greater than the current PE for the US Software industry at 46.9x.
• Analysts expect the number of shares outstanding to grow by 2.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.

Zscaler Future Earnings Per Share Growth

Risks

• Entrenched competition from larger security platform vendors (such as Microsoft, Palo Alto Networks, and Cisco) that increasingly offer bundled, integrated solutions could lead to pricing pressure, loss of market share, and compression of Zscaler's revenue growth and margins over time.
  
• A sustained period of macroeconomic uncertainty, with cautious customer IT spending and ongoing large deal scrutiny, could dampen demand for Zscaler's products, especially as customers prioritize cost efficiency, potentially slowing ARR and revenue expansion.
  
• Expanding the platform and rapid rollout of new products (particularly through programs like Z-Flex and acquisitions such as Red Canary) may lead to increased operating complexity and persistent high operating expenses, which could weigh on long-term profitability and hinder conversion of revenue growth into strong net margins.
  
• Potential shifts in industry security paradigms-such as greater adoption of decentralized, edge, or endpoint-based cybersecurity architectures-could undermine Zscaler's proxy-based cloud model, risking obsolescence in some customer segments and a decline in future revenue streams.
  
• Growing regulatory scrutiny around data privacy, localization requirements (especially in EMEA and APAC), and customer preference for regional or integrated vendors may introduce barriers to growth, slow Zscaler's international expansion, and reduce its ability to secure large contracts, thereby impacting top-line growth.

Valuation

• The analysts have a consensus price target of $315.607 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 $215.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.5 billion, earnings will come to $140.7 million, and it would be trading on a PE ratio of 465.5x, assuming you use a discount rate of 8.0%.
• Given the current share price of $290.07, the analyst price target of $315.61 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.