Zscaler's $10.47 Billion Trading Day Ranks 63rd Amid Red Canary Acquisition and Market Challenges

On May 29, 2025, Zscaler (ZS) experienced a trading volume of $10.47 billion, marking an 85.38% increase from the previous day and ranking 63rd in the day's stock market activity. However, the stock price fell by 1.00%, marking the second consecutive day of decline, with a total decrease of 2.41% over the past two days.

Zscaler has entered into an agreement to acquire Red Canary, a leading managed detection and response (MDR) vendor. This strategic move aims to enhance Zscaler's AI-powered security capabilities by integrating Red Canary's automation-led threat detection into its Zero Trust framework. The acquisition is expected to close in August 2025, combining Zscaler's extensive security cloud infrastructure with Red Canary's decade-long expertise in threat intelligence and managed detection and response.

The acquisition of Red Canary is seen as a natural expansion of Zscaler's capabilities, accelerating its innovation in AI-powered security operations. This move is expected to strengthen Zscaler's market position by adding complementary security services, potentially enhancing its portfolio and market competitiveness. Despite the new direction, the acquisition is viewed as a strategic expansion that aligns with Zscaler's long-term growth objectives.

Zscaler's recent financial performance has been robust, with a 23% year-over-year revenue growth, surpassing guidance expectations. The company's annual recurring revenue (ARR) grew by 23% year over year, reaching over $2.7 billion. Operating profit increased by 36%, with the operating margin improving by 2 percentage points to nearly 22%. Zscaler achieved a record free cash flow margin of 22% for Q2, reflecting strong financial health and operational efficiency.

However, there are some challenges and concerns. Despite strong performance, there is ongoing scrutiny on large deals, reflecting tighter macroeconomic conditions. The gross margin slightly decreased to 80.4% compared to 80.8% in the previous year. The company noted that increased success in selling bigger bundles could reduce the dollar-based net retention rate in the future. There is also a potential impact on sales productivity due to the complexity of closing large deals. Additionally, Zscaler faces competition from legacy security vendors, which could impact its market positioning.