Zscaler: On A Likely Path To Reclaiming Its All-Time Highs

Zscaler (ZS) reported strong Q3 FY25 earnings, beating revenue estimates with 23% YoY growth and highlighting growth in $100K+ and $1M+ ARR customers. The company is expanding its Zero Trust Exchange platform with Zero Trust Everywhere and introducing the Z-Flex purchasing program to enhance customer flexibility amid macroeconomic uncertainty. Due to this, the author has reiterated a "buy" rating and raised the price target to $373, citing potential for the stock to reclaim all-time highs, contingent on sustained fundamental performance and profitability expansion.

Analysis

Zscaler (ZS) delivered a strong third-quarter fiscal 2025, beating estimates with a 23% year-over-year revenue growth to $678 million, while maintaining a non-GAAP operating margin of 22%. This top-line performance is driven by sustained enterprise momentum, reflected in the 28% compounded annual growth rate of its $1M+ Annual Recurring Revenue (ARR) customer base over the last three years. The company is capitalizing on the industry trend of security vendor consolidation by expanding its platform capabilities under the "Zero Trust Everywhere" initiative, which extends its architecture beyond users to cloud workloads and branches. This strategy is gaining traction, with a 60% quarter-over-quarter increase in Zero Trust Everywhere enterprise customers and strong new logo acquisition for its Zero Trust Branch solution. In response to macroeconomic caution, Zscaler has launched the Z-Flex purchasing program to offer customers budget predictability and flexible adoption, a move that has already secured $65 million in total contract value. The company's confidence is further underscored by its raised full-year guidance for both revenue and operating margin. However, the author's bullish price target of $373 hinges on ambitious assumptions, including an expansion of the non-GAAP operating margin to 25% by FY29 and a sustained high valuation multiple, indicating that significant optimism is already priced into the stock, requiring flawless execution to be realized.

Key Decisions for Investors

• Given the strong earnings beat, raised guidance, and accelerating adoption of its expanded platform, investors may consider the stock's fundamental momentum supportive of a bullish outlook, while closely monitoring the growth rate of $1M+ ARR customers as a key performance indicator.
• The new Z-Flex purchasing program should be monitored as a critical catalyst for mitigating macroeconomic headwinds; its contribution to revenue and total contract value in coming quarters will be a measure of its success in driving deeper platform adoption amid cautious IT spending.
• Investors should be aware that the stock's valuation incorporates significant future growth and margin expansion, meaning any failure to meet the projected 25% non-GAAP operating margin by FY29 or a slowdown in sales productivity could pose a considerable risk to the current price target.