Zscaler 2025 Q3 Earnings Misses Targets with 121.6% Net Income Decline

Zscaler (ZS) reported its fiscal 2025 Q3 earnings on May 29th, 2025. The company posted revenue of $678.03 million, surpassing expectations of $666.86 million. However, Zscaler experienced a setback with a net loss of $4.13 million, marking a sharp decline from the previous year's profit. Despite this, the company raised its full-year 2025 revenue guidance to a range of $2.659 billion to $2.661 billion, reflecting a positive outlook. Zscaler anticipates Q4 revenue of $705 million to $707 million, aligning with market expectations.

Revenue

Zscaler reported a robust 22.6% year-over-year revenue growth in Q3 2025, reaching $678.03 million, up from $553.20 million in the same quarter of 2024. Revenue from channel partners significantly contributed with $597.89 million, while direct customers accounted for $80.14 million, collectively driving the total revenue figure.

Earnings/Net Income

Zscaler swung to a net loss of $0.03 per share in Q3 2025 compared to a profit of $0.13 per share in Q3 2024, signaling a 123.1% negative change. The company's net loss of $4.13 million reflected a 121.6% deterioration from the previous year's net income of $19.12 million. The EPS indicates financial challenges continue to persist.

Price Action

The stock price of Zscaler declined by 1.53% during the latest trading day, increased by 0.96% over the most recent full trading week, and surged 14.21% month-to-date.

Post-Earnings Price Action Review

Following the earnings report, a strategy of purchasing Zscaler shares post-revenue increase and holding for 30 days yielded a 22.41% return. However, this return lagged behind the benchmark, which saw a 39.33% gain, resulting in an excess return of -16.92%. The Sharpe ratio of 0.13 indicated limited risk-adjusted returns, highlighting the volatility of this strategy. The strategy experienced a maximum drawdown of -57.59% and a compound annual growth rate (CAGR) of 7.05%, underscoring the importance of risk management in such a volatile market environment.

CEO Commentary

Jay Chaudhry, Chairman and CEO, emphasized Zscaler's strong Q3 performance with a notable 23% year-over-year revenue growth and high demand for its Zero Trust security platform. He highlighted the achievement of over $1 billion in total contract value bookings and nearly $5 billion in remaining performance obligations. Chaudhry expressed optimism despite economic uncertainties, aiming for continued growth toward $5 billion or more in annual recurring revenue (ARR).

Guidance

Zscaler projects Q4 revenue between $705 million and $707 million, reflecting a 19% year-over-year growth. For fiscal year 2025, the company expects total revenue between $2.659 billion and $2.661 billion, with billings projected at $3.184 billion to $3.189 billion, indicating a growth of 21% to 22%. Earnings per share are forecasted to be in the range of $3.18 to $3.19, assuming a 23% tax rate.

Additional News

Zscaler announced a strategic acquisition of Red Canary, a leader in Managed Detection and Response (MDR), to enhance its security operations center capabilities. The acquisition, expected to close by August 2025, will integrate Red Canary's expertise with Zscaler's AI-driven security solutions. In a leadership update, Zscaler appointed Kevin Rubin as the new Chief Financial Officer, succeeding Remo Canessa, who is retiring. Additionally, Zscaler appointed Raj Judge to its Board of Directors and as Executive Vice President of Corporate Strategy & Ventures, further strengthening its leadership team.