Zscaler Beats Q4 Estimates, Analysts Mixed On Price Targets Despite Growth

Zscaler reported robust fiscal Q4 results, with billings of $1,202 million (up 32% Y/Y) and revenue of $719 million, both surpassing consensus estimates. Annual Recurring Revenue (ARR) grew 22% to $3.02 billion, notably driven by AI-related segments which now exceed $1 billion in ARR and are growing faster than the overall business. The company issued strong fiscal 2026 guidance, projecting 22-23% ARR growth and operating margin expansion, leading to reaffirmed positive ratings and adjusted price targets from analysts. Despite these strong financial metrics and optimistic outlook, ZS shares experienced a modest decline of 1.03% on Wednesday morning.

Analysis

Zscaler (ZS) reported a comprehensive fiscal fourth-quarter beat, with billings rising 32% year-over-year to $1.202 billion and revenue reaching $719 million, both surpassing consensus estimates. The company's Annual Recurring Revenue (ARR) grew 22% to $3.02 billion, and critically, net new ARR growth accelerated to 16% year-over-year from just 6% in the previous quarter, signaling significant business momentum. Growth is increasingly powered by strategic initiatives in AI, Zero Trust, and Data Security, which now collectively represent over $1 billion in ARR and are expanding faster than the core business. Management issued a strong fiscal 2026 forecast, projecting 22-23% ARR growth and operating margin expansion of approximately 65 basis points, a guidance viewed by analysts as robust and potentially conservative as it excludes contributions from Red Canary renewals. Despite overwhelmingly positive analyst sentiment with multiple "Buy" or "Outperform" ratings and price targets in the $330-$350 range, the stock saw a minor decline of 1.03%, suggesting that high expectations may have already been priced in or that the market is digesting minor ambiguities, such as the noted lower ARR from the Red Canary acquisition.

Key Decisions for Investors

• Given the strong outperformance on key metrics, accelerating net new ARR, and a robust FY26 outlook, the modest share price decline could present a tactical opportunity for investors to initiate or add to positions.
• Investors should closely monitor the performance of the AI-driven segments, as their continued outsized growth, now exceeding $1 billion in ARR, is fundamental to achieving the company's long-term growth targets.
• While analyst ratings are overwhelmingly positive, it is prudent to track the company's execution against its strong guidance and watch for further clarification on the integration and ARR contribution of the Red Canary acquisition.