Zscaler earnings review and 2025 outlook $ZS

1. Overview – Cloud-native zero-trust security at scale

Zscaler (NASDAQ: ZS) is a cloud security company that delivers secure internet and private app access through a multi-tenant, cloud-native platform built around zero trust principles. It sits at the heart of the fast-growing Secure Access Service Edge (SASE) and Security Service Edge (SSE) markets, replacing legacy VPNs and on-premise appliances with a distributed cloud of security inspection nodes. For fiscal 2025 (year ended July 31, 2025), Zscaler generated about $2.67 billion in revenue, growing roughly 23% year over year and continuing a multi-year run of 40%+ compound growth since 2021. The company is headquartered in San Jose, California, and serves large enterprises and governments globally. Key publicly traded competitors include Palo Alto Networks, CrowdStrike, Fortinet, Cisco, Cloudflare, and Netskope in different slices of SASE/SSE and broader cybersecurity.

2. Latest quarter – Q1 FY26 beat and guidance raise

In its latest reported quarter, Q1 fiscal 2026 (quarter ended October 31, 2025, reported on November 25), Zscaler delivered revenue of $788.1 million, up 26% year over year and ahead of consensus expectations around $773 million. Non-GAAP EPS came in at $0.96, beating analyst estimates near $0.86 and rising from $0.77 in the prior-year quarter, while GAAP still showed a modest net loss of $11.6 million as the company invests heavily in go-to-market and R&D. Management guided Q2 FY26 revenue to $797–$799 million and non-GAAP EPS of $0.89–$0.90, both slightly above the Street, and raised full-year FY26 revenue guidance to $3.282–$3.301 billion with non-GAAP EPS of $3.78–$3.82, implying low-20s percent top-line growth with improving operating leverage. Despite the beat-and-raise, the stock sold off 5–6% after hours as investors focused on valuation, billings quality, and ongoing GAAP losses.

3. Origins – Founders, founding story, and early years

Zscaler was founded in 2007 by serial security entrepreneur Jay Chaudhry along with co-founder K. Kailash, initially under the name SafeChannel, before rebranding as Zscaler. Chaudhry had previously built and sold multiple security companies (SecureIT, CoreHarbor, CipherTrust, AirDefense) and saw that the rise of SaaS and cloud applications would break the traditional “castle-and-moat” perimeter security model. The founding thesis was simple but aggressive: instead of shipping hardware boxes to the customer’s data center, deliver security as a globally distributed cloud service that all user and app traffic passes through. Zscaler launched its first services around 2008, focusing on secure web gateways and internet access, then steadily expanded into private app access (replacing VPNs) and broader zero trust offerings.

4. Funding, IPO, and capital base

Zscaler raised institutional capital relatively early for a security infrastructure startup, including a $38 million round in 2012 and a $100 million round led by TPG in 2015, using that capital to scale out its global data center footprint and enterprise sales force. The company went public on Nasdaq in March 2018, raising roughly $192 million at an initial market cap under $4 billion; since then, the market value has expanded to around the high-$30 billions, reflecting both rapid revenue growth and a premium cloud-security multiple. Post-IPO, Zscaler has periodically tapped equity-based compensation and opportunistic secondary offerings but has not relied heavily on debt, keeping a net cash position and a balance sheet designed to weather macro or IT spending cycles. This financial strength has allowed the company to pursue tuck-in acquisitions and heavy R&D around AI-powered security analytics without jeopardizing liquidity.

5. Products – Platform pillars and monetization model

The core platform has two flagship pillars: Zscaler Internet Access (ZIA), which secures user access to the public internet and SaaS apps, and Zscaler Private Access (ZPA), which provides zero-trust access to private applications without traditional VPNs. Around these, Zscaler has built out Zscaler Digital Experience (ZDX) for performance visibility, a range of data protection and cloud security modules, and increasingly AI-driven threat detection and policy automation. The business model is subscription-based, usually sold per user or per device, with multi-year contracts that translate into strong annual recurring revenue (ARR) and high gross margins. Upsell motion is key: customers are often landed with ZIA or ZPA and then expanded onto additional modules (data loss prevention, cloud firewall, advanced threat protection, etc.), along with higher service tiers and more seats.

6. Competitive set and geographic footprint

Zscaler primarily competes in SASE/SSE and zero-trust network access, where its main rivals include Palo Alto Networks’ Prisma SASE, Fortinet’s Security Fabric and SASE offerings, Netskope, Cloudflare One, Cisco’s security cloud stack, and to some degree Microsoft’s security suite. On the endpoint/XDR side, CrowdStrike is not a direct SASE competitor but overlaps at the broader “zero trust and cloud-native security platform” level in CIO and CISO budgets. Zscaler runs more than a hundred data centers worldwide and serves thousands of customers, including a large share of the Global 2000, with especially strong presence in North America and Europe and growing adoption in regulated industries and governments. Headquarters is in San Jose, California, with large engineering and sales footprints spread globally.

7. Market – SASE, SSE, and zero trust demand

Zscaler operates at the intersection of SASE and SSE, two of the fastest-growing segments of enterprise security, driven by hybrid work, multi-cloud adoption, and the collapse of the traditional network perimeter. Research firms estimate the secure access service edge market at roughly $15–16 billion in 2025, projected to reach about $45 billion by 2030, implying a 23–24% CAGR through the end of the decade. On the SSE side (the cloud-delivered security half of SASE), market size estimates run from around $6–8 billion in 2024–2025 to the low-20 billions by 2030, with CAGRs in the mid-20% range. In other words, Zscaler is playing in a market that should compound roughly 20–25% annually, faster than overall cybersecurity and far faster than enterprise IT spending growth.

8. Market structure and 2030 outlook

The SASE/SSE market is structurally attractive because it rewards integrated, cloud-native platforms that can consolidate multiple point products (secure web gateway, firewall-as-a-service, CASB, ZTNA, data protection) into a single stack. By 2030, many large enterprises are expected to have retired several legacy VPN and gateway products, shifting to 1–2 primary SASE providers globally, which favors vendors with global POP density, rich policy engines, and deep ecosystem integrations. While new entrants and hyperscaler-native offerings will appear, the current leaders—Zscaler, Palo Alto Networks, Fortinet, Cisco, Cloudflare, and Netskope—are positioned to capture most of this shift, with Zscaler seen as one of the “pure-play” cloud security leaders and a frequent member of shortlists for large zero-trust transformations.

9. Competitors – who Zscaler fights for budgets

In large enterprise deals, Zscaler most commonly finds itself head-to-head with Palo Alto Networks and Netskope for full SASE/SSE transformations, and with Fortinet and Cisco when customers have heavy investments in existing firewall or SD-WAN gear they are reluctant to rip out. CrowdStrike shows up in board-level discussions as a competing security platform vision, but the direct product overlap is more around Zero Trust story and identity/endpoint integration than around SASE pipes themselves. Cloudflare is an increasingly credible competitor for mid-market and developer-centric customers, leveraging its global network and strong brand, while Microsoft can undercut on price via E5 security bundles, especially in Microsoft-heavy shops. This competitive intensity forces Zscaler to differentiate on security efficacy, performance, and total cost of ownership rather than price alone.

10. Competitive dynamics and win patterns

Zscaler tends to win where customers prioritize zero-trust architecture purity, global performance, and long-term network transformation over short-term hardware reuse. It has historically excelled in regulated industries, global enterprises with large remote workforces, and customers that want to dramatically simplify their network topology by moving security to the cloud edge. However, in accounts where firewall refresh cycles and SD-WAN consolidation are the primary drivers, Palo Alto Networks and Fortinet often have an incumbency advantage and can bundle SASE functionality to defend share. Netskope and Cloudflare are strong in data protection and developer-savvy use cases, respectively, forcing Zscaler to keep investing aggressively in innovation and integrations to maintain its win rates.

11. Differentiation – what makes Zscaler different

Zscaler’s key differentiation lies in its fully cloud-native, multi-tenant “security cloud” that operates as a massive inline proxy fabric rather than a collection of virtualized appliances. That translates into consistent policy enforcement for all users and apps, regardless of location, and provides rich telemetry for AI-driven threat detection and user experience analytics. The company’s zero-trust implementation is comparatively strict, focusing on app-to-app and user-to-app identity rather than network-centric VPN-style models, which appeals to security-forward customers. Zscaler also benefits from its long operating history in SASE/SSE, giving it massive data for threat models and performance tuning, and from a go-to-market motion tightly aligned with CIO/CISO-led transformation projects rather than just incremental point upgrades. The downside of this “pure-play, cloud-first” stance is that it offers less hardware or SD-WAN bundling leverage than rivals, but that also keeps the architectural story cleaner.

12. Management – core leadership

Founder and CEO Jay Chaudhry remains the central figure at Zscaler, bringing decades of security entrepreneurship and a strong product-led viewpoint to strategy and culture. Under his leadership, Zscaler has leaned into bold bets—like building a global proxy cloud early—rather than incremental extensions to legacy models, which has paid off in positioning but required sustained investment and risk tolerance. Longtime CFO Remo Canessa has overseen Zscaler’s transition from hyper-growth cash burner to a company delivering consistent non-GAAP profitability and strong free cash flow, even as GAAP net income remains negative due to stock-based compensation and other non-cash items. The broader leadership bench includes seasoned product and go-to-market executives drawn from major security and networking vendors, which helps Zscaler navigate complex, global enterprise sales cycles.

13. Financial performance – top-line growth and CAGR

Over the last five fiscal years, Zscaler’s revenue has scaled from about $673 million in FY2021 to approximately $1.09 billion in FY2022, $1.62 billion in FY2023, $2.17 billion in FY2024, and $2.67 billion in FY2025. That trajectory represents roughly a 4-year compound annual growth rate of about 41%, with growth decelerating from more than 60% in the early 2020s to the low-20s today as the base has expanded and macro headwinds have emerged. Even at this lower growth rate, Zscaler is still outgrowing most large-cap software and many security peers, particularly given its scale. Quarterly revenue continues to grow in the mid-20s percent range, and ARR is now in the multi-billion-dollar territory, providing a solid foundation for future operating leverage.

14. Financial performance – profitability, margins, and cash

Profitability has improved steadily, though GAAP earnings remain negative. GAAP net income in FY2025 was roughly -$41 million, better than the -$58 million loss in FY2024 and materially improved versus much larger losses years earlier, as revenue growth and gross margins above 75% help absorb operating expenses. Non-GAAP operating margins have climbed into the low 20s percent range, with Q1 FY26 delivering around 22% non-GAAP operating margin and non-GAAP EPS of $0.96, showing that the company can generate meaningful earnings power if it moderates investment. Free cash flow has also been robust, helped by prepaid multi-year contracts and high gross margins, giving Zscaler a cash and equivalents balance in the multi-billion range and relatively modest debt, which provides flexibility for R&D, M&A, and potential downturns.

15. Financial performance – balance sheet, peers, valuation

On the balance sheet, Zscaler carries several billion dollars of assets with a sizable cash and equivalents cushion and total liabilities in the mid-single-digit billions, largely from deferred revenue and convertible debt, leading to an enterprise value slightly below its roughly $38.8 billion market cap. Relative to peers, Zscaler’s ~$2.67 billion of FY2025 revenue and -$0.04 billion net income compare with Palo Alto Networks at about $9.2 billion revenue and $1.1+ billion net income, CrowdStrike at roughly $3.95 billion revenue and a small GAAP loss after several profitable quarters, and Fortinet at around $5.96 billion revenue and $1.75 billion net income. As of early December 2025, those companies trade at market caps of roughly $38.8 billion (ZS), $130–131 billion (PANW), $126–127 billion (CRWD), and about $60–61 billion (FTNT), illustrating how investors are paying a premium for large, profitable platforms while still assigning a rich multiple to Zscaler’s pure-play growth story. Conceptually, if you plotted a year-over-year earnings chart for Zscaler’s latest quarter, you would see revenue bars rising from about $628 million in Q1 FY2025 to $788 million in Q1 FY2026 and an EPS line stepping up from roughly $0.77 to $0.96, while a market-cap-vs-peers bar chart would show Zscaler as a smaller, high-growth specialist compared with Palo Alto and CrowdStrike, and somewhat closer to Fortinet in value despite Fortinet’s higher current scale and profitability.  

Bull case for Zscaler

• Zscaler is a leader in a structurally high-growth SASE/SSE market compounding ~20–25% annually, with a long runway as enterprises rip out legacy VPNs and on-premise gateways.
• The business has demonstrated strong operating leverage, with non-GAAP margins already above 20% and room to expand as revenue scales, implying the potential for a durable “rule-of-40+” profile.
• If Zscaler can maintain mid-20s revenue growth while deepening its platform (data protection, AI analytics, cloud security) and increasing average deal size, the current valuation could be justified or even appear cheap in hindsight.

Bear case for Zscaler

• Competition from Palo Alto Networks, Fortinet, Cloudflare, Netskope, Cisco, and Microsoft is intense, and many rivals can bundle SASE into broader hardware or software deals, putting pressure on win rates and pricing.
• The stock trades at a rich multiple (high-teens price-to-sales and high forward P/E vs the broader software sector), leaving little room for execution missteps, macro weakness, or billings volatility without meaningful multiple compression.
• GAAP profitability is still negative, and any slowdown in growth, shift in security spending priorities, or adverse renewal/billings trends could expose the vulnerability of a valuation built on aggressive long-term growth assumptions.

Analyst reactions to the latest earnings

Sell-side reaction to Zscaler’s Q1 FY26 report has been broadly positive on fundamentals but cautious on valuation and short-term stock behavior. Several firms raised or reiterated bullish price targets: RBC lifted its target into the mid-$360s with an “Outperform” rating, Berenberg trimmed a very high target but maintained “Buy,” and Wedbush highlighted the quarter as “robust,” reiterating an Outperform with a target around $350. Capital One Securities upgraded the stock to “Overweight” and increased its price target to $320 from $289, reflecting confidence in Zscaler’s AI-driven SASE opportunity and margin trajectory. Consensus 12-month price target sits in the mid-$330s, implying meaningful upside from current levels, with the analyst split heavily skewed toward Buy/Outperform and very few neutral ratings.

Valuation snapshot versus top peers

Below is a simplified valuation snapshot comparing Zscaler with three large security peers on scale, growth, profitability, and market value (latest available full-year data, approximated and rounded):

The stock is in a stage 4 decline on all 3 timeframes (monthly, weekly and daily) and should see a reversal in the $220 – $234 range. We will not be buyers until the confirmed reversal.