Zscaler, Inc.
ZS · NASDAQ-GS
Next quarter
Reports Nov 24, 2026.
Consensus is $0.12 EPS for Oct 2026 across 10 estimates, ranging $0.11 to $0.18.
ZS Jul 2026
- 133.33%
- -4.50%
- $0.06
- $0.14
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Highlights
- Revenue: Fourth-quarter revenue rose 25% year over year to $898.2 million, up from $850.5 million in Q3 FY2026 and $719.2 million a year ago.
- EPS beat: Reported EPS was $0.14 versus $0.06 consensus, a 133.33% surprise; the company reported non-GAAP diluted EPS of $1.19 and GAAP diluted loss per share of $0.02.
- Recurring revenue: ARR increased 25% year over year to $3.771 billion, including $246 million of net new ARR; excluding Red Canary, ARR growth was 20% and net new ARR growth was 17%.
- Profitability: Non-GAAP operating income reached a record $218.4 million, or 24% of revenue, versus $158.9 million and 22% a year ago; GAAP operating loss narrowed to $15.5 million from $32.2 million.
- Cash generation: Operating cash flow rose to $279.3 million, but free cash flow fell to $60.8 million, or 7% of revenue, from $171.9 million and 24% a year ago because property and equipment spending increased to $199.8 million.
- Fiscal 2027 outlook: Management expects full-year revenue of $3.908 billion to $3.938 billion and ARR of $4.396 billion to $4.426 billion, implying growth of roughly 16.6% to 17.5%, with a 23.0%-23.5% free-cash-flow margin.
- Platform expansion: Management highlighted non-seat-based solutions, Z-Flex, record large deals and improving sales productivity as growth drivers, while positioning Security for AI and Agentic SecOps as major expansion opportunities.
Analysis
Zscaler's fiscal fourth quarter was a strong top- and bottom-line print, with revenue of $898.2 million up 25% year over year and 5.6% sequentially from $850.5 million in Q3. Reported EPS of $0.14 exceeded the $0.06 consensus estimate by 133.33%; on the company's disclosed measures, non-GAAP diluted EPS was $1.19 versus $0.89 a year ago, while GAAP diluted loss per share improved to $0.02 from $0.11. The result also extended the company's recurring-revenue momentum: ARR reached $3.771 billion, up 25% year over year, although Red Canary contributed $141 million of ARR and reduced organic ARR growth to 20%.
The defining feature of the quarter was operating leverage alongside broadening monetisation. Non-GAAP operating margin expanded to a record 24% from 22% a year ago, and net new ARR rose 24% to $246 million, supported by non-seat-based products, Z-Flex and large transactions. Cash generation was more mixed: operating cash flow increased 11% to $279.3 million, but free cash flow dropped to $60.8 million from $171.9 million as capex and internal-use software spending reached $218.5 million. For fiscal 2027, guidance calls for 16.6%-17.5% revenue growth and roughly 21% growth in non-GAAP operating income, signaling a planned moderation from FY2026's 25% growth.
ARR and platform expansion
- ARR growth: ARR rose 25% year over year to $3.771 billion, with $246 million of net new ARR in the quarter. Excluding $141 million of ARR from Red Canary, ARR grew 20% and net new ARR grew 17%.
- Broader monetisation: Management said growth is expanding beyond user-based products, with non-seat-based solutions, Z-Flex, record large-deal activity and improving sales productivity contributing to the quarter.
- AI opportunity: Zscaler is emphasizing Security for AI, Agentic SecOps and Zero Trust SASE as the platform's principal expansion areas, targeting both protection from AI-enabled threats and secure deployment of AI agents and models.
- Customer base: The company ended the year with approximately 11,000 customers, up from approximately 9,400 a year earlier, and supports more than 4,600 organizations with over 1,500 employees.
Operating leverage
- Non-GAAP margin: Non-GAAP operating income increased 37% year over year to $218.4 million, lifting operating margin to a record 24% from 22%.
- GAAP improvement: GAAP operating loss narrowed to $15.5 million, or 2% of revenue, from $32.2 million, or 4%, while GAAP net loss narrowed to $3.4 million from $17.6 million.
- Gross margin: Non-GAAP gross margin improved to 80% from 79%, while GAAP gross margin rose to 77% from 76%.
- Stock compensation: Stock-based compensation and related payroll taxes were $215.2 million in the quarter, up from $180.8 million a year earlier, and were the largest adjustment to non-GAAP operating income.
Cash flow and infrastructure
- Operating cash flow: Cash provided by operations rose 11% year over year to $279.3 million, although operating cash-flow margin declined to 31% from 35%.
- Free cash flow: Free cash flow fell to $60.8 million, or 7% of revenue, from $171.9 million and 24% a year ago.
- Higher investment: Property and equipment purchases increased to $199.8 million from $60.0 million, while capitalized internal-use software was $18.7 million; combined spending was $218.5 million versus $78.7 million a year ago.
- Liquidity: Cash, cash equivalents and short-term investments totaled $3.474 billion at July 31, 2026, while deferred revenue reached $2.926 billion, up 19% year over year.
Fiscal 2027 outlook
- First quarter: Revenue is expected at $935 million to $939 million, representing approximately 19% year-over-year growth, with an anticipated 23% non-GAAP operating margin and diluted EPS of $1.15 to $1.16.
- Full-year revenue: FY2027 revenue guidance is $3.908 billion to $3.938 billion, implying growth of 16.6% to 17.5% versus $3.353 billion in FY2026.
- Full-year ARR: ARR guidance is $4.396 billion to $4.426 billion, or approximately 16.6%-17.4% growth.
- Profitability and cash: Non-GAAP operating income is expected at $924 million to $932 million, roughly 21% growth, with free-cash-flow margin of 23.0%-23.5%.
Annual scale and acquisitions
Fiscal 2026 revenue increased 25% to $3.353 billion, including $144 million from Red Canary; excluding the acquisition, revenue grew 20% to $3.209 billion. The company generated $1.130 billion of operating cash flow and $779.1 million of free cash flow for the year, compared with $972.5 million and $726.7 million, respectively, in FY2025. Acquisition activity was significant: cash paid for business acquisitions was $918.1 million for the year, and goodwill increased to $1.218 billion from $417.7 million. The acquisition contribution helped sustain reported ARR growth, but the lower organic growth rate is reflected in the FY2027 outlook.
