Buy or Sell Zscaler Ahead of Earnings?

Zscaler (ZS) is scheduled to report earnings on September 2, 2025, with consensus estimates projecting $0.80 EPS and $707 million in revenue, a 19% year-over-year increase, driven by strong demand for Zero Trust and AI-driven cybersecurity solutions despite broader IT spending caution. The $42 billion market cap firm, which reported recent operational losses of $-123 million, has historically exhibited a 50% probability of a positive one-day post-earnings stock return, with median gains of 9.1% contrasting with median losses of 8.8%, suggesting significant event-driven trading opportunities and volatility around the announcement.

Analysis

Zscaler is positioned for a significant market reaction to its upcoming earnings announcement on September 2, 2025, with consensus estimates projecting a 19% year-over-year revenue increase to $707 million and earnings of $0.80 per share. The firm's growth narrative is supported by strong secular tailwinds in cybersecurity, particularly demand for its Zero Trust and AI-driven platforms, which appear to be offsetting broader macroeconomic headwinds causing cautious IT spending. However, this top-line momentum contrasts with the company's current financial profile, which includes an operational loss of $123 million and a net loss of $39 million over the last twelve months on $2.5 billion in revenue. Historical data reveals extreme volatility surrounding its earnings events; post-earnings one-day returns over the past five years have been positive exactly 50% of the time, with a significant median gain of 9.1% on positive days and a nearly symmetrical median loss of -8.8% on negative days. This suggests the market reaction is typically binary and pronounced, making the event a high-stakes catalyst for the $42 billion market capitalization company.

Key Decisions for Investors

• Given the historical 50% probability of a positive return and the substantial median stock move of approximately +/- 9%, investors should anticipate significant post-earnings volatility, making options strategies to hedge or play volatility potentially more prudent than making a directional bet pre-announcement.
• Focus should be placed on forward-looking guidance concerning the IT spending environment and the adoption of new offerings like Z-Flex, as the stock's reaction will likely depend more on the future outlook than on meeting the backward-looking consensus estimates.
• Long-term investors should scrutinize management's commentary for any updates on the path to profitability, as the company's current operational loss of $123 million remains a key concern despite the strong revenue growth trajectory.
• Event-driven traders might consider the historical relationship between short-term and medium-term returns post-earnings, but should note the article implies this strategy's effectiveness is contingent on strong correlations which were not explicitly provided.