Zscaler Revenue Jumps 21% in Fiscal Q4

Zscaler (NASDAQ:ZS) reported strong Q4 FY2025 results, with revenue of $719.2 million, up 21% year-over-year, and non-GAAP EPS of $0.89, both exceeding guidance and analyst expectations. Annual Recurring Revenue (ARR) grew 22% to $3.015 billion, driven by robust customer adoption and a 32% surge in calculated billings. The cloud security provider continues to enhance its Zero Trust platform with new AI-powered modules and strategic acquisitions like Red Canary, positioning it for continued growth, though it still recorded a GAAP net loss. Investors should monitor ongoing profitability trends, integration of acquisitions, and intensifying competition in the AI cybersecurity market.

Analysis

Zscaler (ZS) demonstrated significant business momentum in its Q4 FY2025 earnings report, exceeding both guidance and analyst expectations with revenue of $719.2 million, a 21% year-over-year increase. The company's growth is underscored by strong forward-looking indicators, including a 22% rise in Annual Recurring Revenue (ARR) to $3.015 billion and a notable 32% surge in calculated billings, suggesting a robust sales pipeline and successful upselling activities. Profitability on a non-GAAP basis was solid, with non-GAAP EPS hitting $0.89 and the non-GAAP operating margin holding steady at 22%, complemented by a 26.1% increase in free cash flow. However, this is contrasted by a persistent GAAP net loss, which widened slightly to $17.6 million, primarily driven by high operating costs and significant stock-based compensation. Strategically, Zscaler is advancing its competitive moat through product innovation, such as its new AI-powered security modules, and the acquisition of Red Canary to enhance its security operations capabilities. While forward guidance for FY2026 projects continued growth, investors will be watching the integration of new acquisitions and the company's ability to navigate intensifying competition from peers like Rubrik and SentinelOne.

Key Decisions for Investors

• Investors should view the 32% growth in calculated billings and the 30% increase in deferred revenue as key positive indicators of future revenue growth, validating the strong demand for Zscaler's Zero Trust platform.
• It is critical to monitor the company's path to sustainable GAAP profitability, paying close attention to the magnitude of stock-based compensation and the operational costs associated with integrating the Red Canary acquisition.
• Given the intensifying competition in AI-driven cybersecurity, investors should assess Zscaler's ability to maintain its innovation lead and market share, particularly as rivals like Rubrik and SentinelOne expand their offerings.
• The solid forward guidance for FY2026 revenue and ARR provides a constructive outlook, but positions should be managed with an eye on the company's performance against these targets and its operating margin trends.