Zscaler stock maintains Buy rating at BTIG following strong Q4 results

Zscaler (ZS) reported mixed fourth-quarter fiscal 2025 results, with billings surging 32% year-over-year to $1,202 million and revenue of $719 million both exceeding estimates, despite a significant EPS miss of -$0.11. Analysts, including BTIG and Barclays, have largely maintained or raised price targets, citing the strong top-line performance, robust 77.46% gross margins, and optimistic FY26 revenue guidance of $3.275 billion. This performance, coupled with accelerating market share gains in the Security Service Edge (SSE) segment and strong Annual Recurring Revenue (ARR) growth projections, underscores analyst conviction in Zscaler's long-term growth trajectory despite the earnings challenge.

Analysis

Zscaler (ZS) presented a mixed financial picture for its fourth-quarter fiscal 2025, characterized by robust top-line acceleration juxtaposed with a significant bottom-line miss. The company exceeded expectations with billings growth of 32.0% year-over-year to $1,202 million and revenue of $719 million, surpassing the $706.95 million consensus. This top-line strength is underpinned by impressive gross profit margins of 77.46%. However, this performance was overshadowed by a substantial earnings per share (EPS) loss of -$0.11, a stark contrast to the forecasted profit of $0.80. Despite the EPS miss, analyst sentiment remains largely bullish. BTIG reiterated its Buy rating and $365 price target, while Barclays raised its target to $320, focusing on the company's strong Annual Recurring Revenue (ARR) growth trajectory. Analyst conviction is rooted in Zscaler's perceived market share gains within the Security Service Edge (SSE) space during the current firewall refresh cycle. The company's forward guidance for fiscal year 2026 projects $3,275 million in revenue, implying 19% organic growth, a figure that BTIG believes may prove conservative as the year unfolds.

Key Decisions for Investors

• Investors should weigh the significant top-line momentum, evidenced by 32% billings growth, against the substantial Q4 EPS miss, noting that analysts are currently prioritizing the growth narrative.
• Monitor key metrics related to the firewall replacement cycle and Security Service Edge (SSE) adoption, as analyst optimism is heavily dependent on Zscaler capturing market share in this industry shift.
• Consider the provided FY26 revenue guidance of 19% organic growth as a baseline, as there is analyst speculation it may be conservative, presenting potential for upside surprises in future quarters.
• Evaluate the company's valuation in the context of a high-growth, negative-earnings profile, as the investment thesis hinges on future profitability emerging from the current market capture phase.