Better Buy: Zscaler or Workday?

Motley Fool analysts reviewed recent earnings from Zscaler and Workday, highlighting Zscaler's 26% YoY revenue and ARR growth, a $3.2bn ARR backlog (roughly $1bn tied to high-growth initiatives), AI‑security ARR that surpassed a $400m target three quarters early and is expected to approach $500m, and a FY26 revenue guide of 22.8–23.5% (down from 26%) alongside continued operating losses; they also flagged ZFlex subscription TCV of $175m (up 70% QoQ) as a potential upsell lever. Workday posted 15% subscription revenue growth to $2.244bn, non‑GAAP operating margin of 28.5% (up 215bps), operating cash flow up ~45% to $588m, and said AI contributed >1.5 points of ARR growth this quarter with 75% of net new deals and 35% of expansions AI‑related, though growth remains modest given its scale and near‑term government contract headwinds. Analysts split on a decade view—one favoring Workday for steadier 10–12% annualized returns and another preferring Zscaler for higher upside (10–15%) tied to cyber/AI secular demand—while advising investors to weigh valuation, reinvestment needs and behavioral risks (loss aversion, disposition effect, FOMO) when positioning.

Analysis

Motley Fool analysts reviewed Zscaler (ZS) and Workday (WDAY) results: Zscaler reported 26% year‑over‑year revenue and ARR growth, a $3.2 billion ARR backlog (roughly $1 billion tied to high‑growth initiatives), and said its AI‑security ARR surpassed a $400 million target three quarters early with a goal toward ~$500 million before fiscal 2026; management guided FY26 revenue growth to 22.8–23.5% (down from 26%) while the business remains unprofitable on a GAAP basis. ZFlex subscription TCV was $175 million, up 70% quarter‑over‑quarter, indicating early monetization of consumption models.

Workday reported subscription revenue up 15% to $2.244 billion, non‑GAAP operating margin of 28.5% (up 215 bps YoY), and operating cash flow of $588 million (≈+45% YoY); the company said AI added >1.5 points of ARR growth this quarter and that 75% of net new deals were AI‑related, though incremental growth is modest given its scale. Analysts diverged on a 10‑year outlook: one favors Workday for steadier 10–12% annualized returns, another favors Zscaler for 10–15% upside tied to cybersecurity/AI secular demand.

Investment implications center on trade‑offs: Zscaler has stronger AI monetization signals but must convert growth into sustainable profitability and justify rich multiples, while Workday offers margin tailwinds and cash generation but slower organic growth and sensitivity to government contract timing. Key near‑term indicators to watch are Zscaler’s AI‑security ARR trajectory and ZFlex adoption, Zscaler operating‑expense trends (notably stock‑based comp), Workday’s AI contribution to ARR and government revenue cadence, and overall valuation/position sizing given behavioral risks like loss aversion and the disposition effect.

Key Decisions for Investors

• Consider a measured core position in Workday for lower‑volatility exposure to durable cash flow and margin expansion given 28.5% non‑GAAP operating margin and $588m operating cash flow, with a target total return profile in the roughly 10–12% annualized range
• Allocate selective, size‑constrained exposure to Zscaler to capture cybersecurity/AI upside given 26% revenue/ARR growth, >$400m AI‑security ARR and rapid ZFlex adoption, but limit position size due to operating losses and elevated valuation
• Monitor near‑term triggers — Zscaler hitting ~$500m AI‑security ARR, sustained ZFlex TCV growth, reduction in stock‑based comp pressure, Workday’s AI‑driven ARR acceleration and government contract activity — and reweight if these diverge materially from guidance
• Manage behavioral risks by setting predefined position sizes, using periodic rebalancing or hedges, and avoiding reactive selling of winners or holding losers due to the disposition effect