Zscaler: Strong Double-Digit Growth Ahead

ZS is turning its installed base into a compounding revenue engine, but the more important second-order effect is that security buyers increasingly optimize for platform breadth, not point-product performance. That shifts competition away from feature parity and toward bundle economics, where larger vendors can subsidize Zero Trust with adjacent spend; ZS’s moat therefore depends less on product superiority and more on its ability to keep conversion rates high as procurement gets more price-sensitive.

The biggest near-term winner is likely the broader cybersecurity budget, not just ZS: as ZS expands ARPC through upsells, peers will be forced to defend share with discounting or heavier R&D, which can compress margins across the sector over the next 2-4 quarters. That is a subtle negative for smaller, single-product vendors that lack a complementary suite and a large enterprise base; they will feel the pricing pressure first, especially in refresh cycles and multi-year renewals.

The key risk is that ZS’s land-and-expand model is most fragile when buying committees consolidate vendors after a macro slowdown or a major breach-driven audit. If IT budgets tighten, the company can still grow revenue but the mix may shift toward lower-conviction expansions, slowing ARPC acceleration within 1-2 quarters. Conversely, if rivals materially improve Zero Trust and pair it with broader platforms, ZS’s premium multiple becomes harder to defend even if the top line holds.

Consensus appears to be underweighting the duration of the growth runway versus the durability of the margin structure. The market is already assuming competition rises, but may be missing that product cadence plus high customer switching costs can keep net retention elevated longer than expected; the bigger surprise could be slower-than-expected deceleration in expansion revenue, not a collapse in share gains.