Will the Rising Adoption of Z-Flex Boost Zscaler's Revenue Growth?

Zscaler, Inc. ZS is witnessing strong adoption of its Z-Flex program, a flexible, multi-year subscription model that allows customers to adopt and swap modules without restarting procurement cycles. This approach is proving to be a strong growth driver, as it simplifies buying decisions and encourages broader platform adoption.

In the last reported financial results for the second quarter of fiscal 2026, Zscaler’s Z-Flex bookings crossed $290 million, indicating a robust 65% sequential increase. Since its launch about a year ago, the program has generated nearly $650 million in total contract value, with an average contract duration of four years. This longer commitment not only improves revenue visibility but also strengthens customer retention.

Zscaler’s Z-Flex is accelerating deal cycles and driving upsell opportunities. Customers are increasingly expanding across multiple modules, including artificial intelligence (AI) security and data protection offerings. In several large deals, enterprises adopted more than 10 modules in a single contract, signaling strong platform stickiness.

Growing Z-Flex adoption is also supporting Zscaler’s overall financial performance. In the second quarter, the company’s revenues grew 26% year over year to $815.8 million, while annual recurring revenues soared 25% to $3.4 billion. Strong pipeline conversion and record large-deal activity further reinforce the impact of Z-Flex on sales execution.

Z-Flex could be a key catalyst for Zscaler’s top-line growth. By lowering friction in enterprise buying and enabling scalable adoption, it positions the company to capture large value contracts, supporting steady and durable revenue growth. The Zacks Consensus Estimate for Zscaler’s fiscal 2026 and 2027 revenues indicates year-over-year growth of 24% and 19.6%, respectively.

How Do Competitors Fare Against Zscaler?

Zscaler faces intense competition from Palo Alto Networks, Inc. PANW and CrowdStrike Holdings, Inc. CRWD, which have similar platform-driven growth strategies. Both companies are using flexible bundles and integrated platforms to expand customer spending.

Palo Alto Networks focuses on subscription pricing and bundled offerings that combine firewalls, cloud security and XDR tools into integrated suites. These bundles can deliver 10-15% savings versus buying products separately, which encourages customers to adopt Palo Alto Networks’ broader platform packages rather than single solutions. In the second quarter of fiscal 2026, PANW’s next-generation security ARR grew 33% year over year to $6.33 billion, where the platformization strategy was a key driver.

CrowdStrike Holdings uses a similar expansion strategy through its Falcon platform bundles and the Falcon Flex licensing model. These models allow customers to add modules without new procurement cycles. In the fourth quarter of fiscal 2026, ARR from CrowdStrike Holdings’ Falcon Flex customers reached $1.69 billion, growing more than 120% year over year.

Zscaler’s Price Performance, Valuation and Estimates

Shares of Zscaler have plunged 34.9% over the past year compared with the Zacks Security industry’s decline of 12.6%.

Zscaler One-Year Price Return Performance

Image Source: Zacks Investment Research

From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 6.00, significantly below the industry’s average of 10.45.

Zscaler Forward 12-Month P/S Ratio

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Zscaler’s fiscal 2026 and 2027 earnings implies a year-over-year increase of 21.7% and 13%, respectively. Estimates for fiscal 2026 and 2027 have been revised upward in the past 30 days.

Image Source: Zacks Investment Research

Zscaler currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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