ZS: Future Returns Will Rely On Sustained Demand For Cybersecurity Solutions

Zscaler's analyst price target saw a marginal increase of $0.25. Analysts cited solid emerging product traction and improved profit margin expectations, despite mixed operational results.

Analyst Commentary

Analysts provided a mix of positive and cautious views following Zscaler's recent earnings and guidance updates. The majority focused on the company's execution, market positioning, and the implications for valuation and future growth.

Bullish Takeaways

• Bullish analysts highlighted robust performance in emerging products such as Zero Trust solutions and AI Security, noting this as a key driver for upside in annual recurring revenue growth and sector leadership.
• Sequential growth in data security and other new offerings was cited as evidence of successful market expansion and product diversification.
• Several firms pointed to strong billings, margin improvements, and organic ARR growth outpacing expectations. This supported an increase in price targets and reinforced confidence in long-term growth and profitability.
• Continued strength in cybersecurity demand and the company’s ability to pass revenue beats through to annual guidance were viewed as clear positives sustaining momentum and supporting optimistic valuations.

Bearish Takeaways

• Bearish analysts flagged that some bottom line and guidance results fell short of high expectations, with certain quarters showing only moderate organic growth relative to elevated industry standards.
• Cautious perspectives emphasized unquantified contributions from acquisitions and the lack of concrete data on certain financial metrics. These factors raised questions about transparency and the sustainability of recent outperformance.
• Some noted the potential for seasonal slowness and tactical pullbacks in the stock, cautioning that current valuation levels may already reflect much of the anticipated growth.
• Concerns also included the possibility of conservative organic guidance for future fiscal years, which could temper enthusiasm if future earnings do not continue to outpace consensus.

What's in the News

• Zscaler issued earnings guidance for fiscal 2026, forecasting annual recurring revenue of $3.698 billion to $3.718 billion and total revenue of approximately $3.282 billion to $3.301 billion. (Corporate Guidance)
• The company announced its inclusion as an early adoption partner in the Microsoft Entra Agent ID partner ecosystem, collaborating to advance secure and compliant adoption of AI in the enterprise and integrate agent identity management into the Zscaler platform. (Client Announcements)
• Zscaler unveiled new Zscaler Digital Experience (ZDX) features to improve real-time performance monitoring, speed issue resolution, optimize device health, and minimize downtime for enterprise customers. (Product-Related Announcements)
• HCLTech and Zscaler expanded their partnership to deliver AI-powered network transformation, integrating Zero Trust Exchange with advanced cybersecurity analytics for enhanced threat detection and managed security services. (Client Announcements)
• The Alliance for Smart Healthcare Excellence selected Zscaler to sponsor the Zero Trust Maturation Model (ZTMM), a framework designed to help healthcare organizations strengthen cybersecurity resilience and patient safety. (Client Announcements)

Valuation Changes

• Fair Value: Increased marginally from $327.98 to $328.22.
• Discount Rate: Edged up from 8.51% to 8.53%, reflecting a slightly higher risk profile.
• Revenue Growth: Declined modestly from 20.55% to 20.25% year-over-year.
• Net Profit Margin: Improved from 3.08% to 4.02%, indicating stronger profitability expectations.
• Future P/E: Dropped significantly from 503.2x to 379.0x. This suggests a more favorable valuation relative to projected earnings.