Bernstein raises Zscaler stock target to $251 on robust earnings

Bernstein SocGen Group raised its Zscaler (ZS) price target to $251 from $244, maintaining an Outperform rating, after the company's fiscal Q3 earnings beat expectations with a revenue surprise of over $12 million and an upward revision of full-year revenue forecast by $17.5 million. The firm highlighted Zscaler's successful sales strategy transformation, leading to robust expansion within its existing customer base, with existing customers contributing significantly to revenue growth. Despite this positive outlook, Piper Sandler downgraded Zscaler from Overweight to Neutral, raising the price target to $260 from $235, citing concerns about future growth prospects and potential integration challenges following the Red Canary acquisition.

Analysis

Zscaler (ZS) reported strong fiscal third-quarter 2025 results, outperforming expectations with earnings per share of $0.84 against a $0.76 forecast and achieving a revenue beat of over $12 million to reach $678 million, a 23% year-over-year increase. This performance prompted an upward revision of its full-year revenue forecast by approximately $17.5 million at the midpoint. The company showcased impressive financial metrics, including gross profit margins of 77.86%, revenue growth of 27.77% over the last twelve months, and a 23% growth in annual recurring revenue to $2.9 billion. This resilience, particularly noted by Bernstein SocGen Group which reiterated an Outperform rating and increased its price target from $244.00 to $251.00, contrasts with difficulties reported by other cybersecurity firms like Palo Alto Networks and SentinelOne. Bernstein highlighted Zscaler's successful sales strategy transformation, leading to robust expansion within its existing customer base, evidenced by an increased contribution from these clients to in-quarter revenue growth, despite a slight dip in the Net Retention Rate to 114% from 115%. Strategically, Zscaler acquired Red Canary for $675 million to enhance its security operations. However, Piper Sandler offered a more cautious perspective, downgrading ZS from Overweight to Neutral, while still raising its price target to $260 from $235. Piper Sandler's concerns center on future growth prospects, potential integration challenges with Red Canary, and the stock's current valuation, trading at $251.11 near its 52-week high of $259.40 and having already achieved a 39.19% year-to-date return. With a market capitalization of $38.85 billion and analysts anticipating profitability this year, Zscaler's outlook presents both significant opportunities and points for careful consideration.

Key Decisions for Investors

• Investors should weigh Zscaler's robust Q3 performance, strong revenue growth, and positive guidance from Bernstein against valuation concerns and integration risks associated with the Red Canary acquisition, as highlighted by Piper Sandler.
• Monitor the integration progress of Red Canary and its impact on Zscaler's security operations capabilities and financial synergies, alongside the Net Retention Rate, as key indicators of sustained customer expansion and growth.
• Given the stock's trading level near its 52-week high and the divergent analyst opinions (Bernstein's Outperform vs. Piper Sandler's Neutral), consider a balanced approach, assessing the risk-reward profile carefully before initiating or significantly adjusting positions, pending further clarity on acquisition integration and sustained growth momentum.