Barclays raises Zscaler stock price target to $320 on strong ARR growth

Barclays raised its price target on Zscaler (ZS) to $320 from $300, maintaining an Overweight rating, based on a rebuilt revenue model projecting nearly $5 billion in Annual Recurring Revenue (ARR) by fiscal year 2028, with high-growth vectors expanding at mid-30s percentages. This positive outlook, however, contrasts with Zscaler's recent Q4 2025 results, which reported a significant EPS miss of -$0.11 against an expected $0.80. Despite revenue slightly exceeding expectations at $719 million, the substantial earnings shortfall has drawn investor attention and raised questions regarding the company's financial performance.

Analysis

The investment case for Zscaler presents a significant conflict between a bullish long-term growth outlook and severe near-term profitability concerns. On one hand, Barclays has raised its price target to $320.00, maintaining an Overweight rating, based on a model projecting Annual Recurring Revenue (ARR) to approach $5 billion by fiscal 2028. This optimism is supported by the company's robust 77.46% gross profit margins and impressive 25.46% revenue growth over the last twelve months. Barclays' analysis highlights that Zscaler's high-growth vectors, including AI Security, are expanding at a mid-30s percentage rate, approximately double the pace of its core business. On the other hand, this positive long-term view is sharply contrasted by a significant miss in the recent Q4 2025 earnings report. The company posted an EPS of -$0.11, a stark deviation from the forecasted $0.80, representing a -113.75% negative surprise. While revenue for the quarter did slightly beat expectations at $719 million, the magnitude of the earnings miss has justifiably raised investor questions regarding profitability and financial execution, creating a climate of uncertainty despite the strong top-line trajectory.

Key Decisions for Investors

• Investors must weigh the compelling long-term growth narrative, underscored by Barclays' $320 price target and strong ARR expansion, against the significant operational risk highlighted by the recent -113.75% EPS miss.
• It is critical to monitor upcoming earnings reports for a recovery in profitability and scrutinize management's explanation for the Q4 EPS shortfall to determine if it was a one-time event or a symptom of deeper issues.
• Given the stock is trading slightly above its perceived fair value amidst conflicting signals, growth-focused investors might consider the analyst upgrade a buying opportunity, while more risk-averse investors should demand clarity on financial performance before initiating or adding to a position.