Scotiabank lowers Zscaler stock price target to $334 from $360

Zscaler (ZS) reported strong fourth-quarter fiscal 2025 results, exceeding top and bottom-line expectations, which Scotiabank described as a "clean beat" despite lowering its price target to $334 while maintaining a Sector Outperform rating. Analysts generally expressed optimism, with the company demonstrating robust revenue growth of 25.46% and strong billings, and being recognized as a leader in the high-growth SASE market with emerging products driving new contract value. While some analysts, like UBS, noted a conservative fiscal 2026 outlook and Red Canary's ARR being lower than initially projected, the overall consensus highlights Zscaler's solid performance and promising future prospects.

Analysis

Zscaler (ZS) delivered robust fourth-quarter fiscal 2025 results, characterized by a 'clean beat' on both top and bottom-line metrics. The company demonstrated strong operational momentum with revenue increasing 25.46% and impressive billings growth of 32% year-over-year, supported by healthy gross profit margins of 77.46%. Analyst sentiment is broadly positive, with multiple firms highlighting Zscaler's position as the 'clear leader in SASE,' a high-growth and under-saturated market. A key positive driver is the performance of emerging products, which now account for 27% of new annual contract value. However, there are points of caution. Several analysts, including Scotiabank and UBS, trimmed their price targets, citing a conservative fiscal 2026 outlook for approximately 7% organic new ARR growth. Further concerns stem from the Red Canary acquisition's ARR being lower than initially disclosed and an initial stock decline following a change in ARR calculation methodology. Despite these adjustments, most analysts maintained 'Buy' or 'Outperform' ratings, with firms like Stifel and Evercore ISI raising their price targets, indicating underlying confidence in the company's fundamental strength and market position.

Key Decisions for Investors

• Investors should weigh the company's strong execution, evidenced by 25.46% revenue growth and 32% billings growth, against valuation concerns, as the stock is noted to be trading above its estimated fair value.
• Monitor for any upward revisions to the conservative fiscal 2026 guidance for 7% organic new ARR growth, as outperformance on this metric could serve as a significant positive catalyst.
• It may be prudent to parse future earnings reports for clarity on the integration and growth contribution from the Red Canary acquisition, as this has been identified as a point of investor concern.