Zscaler shares soar on quarterly earnings beat, raised full-year outlook

Zscaler (ZS) shares surged over 8% after reporting fiscal Q3 2025 results that exceeded expectations, with revenue up 23% to $678 million and EPS at $0.84, prompting the company to raise its full-year revenue guidance to $2.659-$2.661 billion and EPS to $3.18-$3.19. Wedbush analysts increased their price target to $300, citing strong demand for Zscaler's Zero Trust and AI-driven security solutions and highlighting a 40% year-over-year increase in new logo annual contract value and a 23% increase in customers with over $1 million in annual recurring revenue.

Analysis

Zscaler Inc. (NASDAQ:ZS) shares surged over 8% following the release of its fiscal third-quarter 2025 results, which surpassed analyst expectations and prompted an upward revision of its full-year guidance. For the quarter ending April 30, Zscaler reported revenue of $678 million, a 23% year-over-year increase, exceeding estimates of $666.4 million. Earnings per share (EPS) also outperformed, growing to $0.84 from $0.71 in the prior-year period, against consensus estimates of $0.76. Deferred revenue, a key indicator of future performance, increased by 26% year-over-year to $1.985 billion. Consequently, Zscaler raised its full-year 2025 revenue forecast to a range of $2.659 billion to $2.661 billion and its EPS guidance to $3.18 to $3.19. The company also improved its full-year free cash flow margin guidance to between 25.5% and 26%. In response, analysts at Wedbush increased their price target on Zscaler to $300 from $240, maintaining an 'Outperform' rating, and characterized the results as "another breakout moment." Wedbush emphasized the strong demand for Zscaler's Zero Trust and AI-driven security solutions, noting that 59% of Zero Trust customers were new and new logo annual contract value grew 40% year-over-year. Furthermore, the 23% growth in customers contributing over $1 million in annual recurring revenue was attributed to the success of Zscaler's new account-centric go-to-market model, which has enhanced cross-sell and upsell opportunities, solidifying Wedbush's view of Zscaler as a prime investment in the accelerating cloud cybersecurity transition.

Key Decisions for Investors

• Investors should consider Zscaler's strong Q3 performance and upgraded full-year outlook as reinforcing its leadership position and growth potential within the cybersecurity market, particularly in the Zero Trust segment.
• The notable 40% year-over-year growth in new logo annual contract value and the 23% increase in customers with over $1 million ARR signal effective market penetration and upselling, suggesting continued monitoring of these metrics is warranted to confirm sustained momentum.
• Given the positive analyst revisions, such as Wedbush's increased price target to $300, investors may find the current outlook favorable, though they should weigh the recent share price appreciation in their investment decisions.