Zscaler 2026 Q1 Earnings Beats Expectations with 12.94% EPS Surprise

Zscaler (ZS) reported fiscal 2026 Q1 earnings on Nov 25, 2025, surpassing expectations with a 12.94% EPS surprise and 25.5% revenue growth. The company maintained in-line guidance for Q2 and FY2026, reflecting confidence in its growth trajectory despite ongoing net losses.

Revenue

Channel partners drove the majority of revenue at $666.01 million, while direct customers contributed $122.10 million, resulting in total revenue of $788.11 million—a 25.5% year-over-year increase. This underscores strong demand for Zscaler’s cloud-native cybersecurity solutions.

Earnings/Net Income

Zscaler narrowed losses to $0.07 per share in Q1 2026, a 12.5% improvement from $0.08 per share in Q1 2025. The company’s net loss decreased to $11.62 million, a 3.6% reduction compared to $12.05 million in the prior year. Despite progress, sustained profitability remains a challenge.

Post-Earnings Price Action Review

A strategy of buying Zscaler shares after a revenue drop quarter-over-quarter and holding for 30 days delivered a 141.09% return over three years, outperforming the benchmark by 75.10%. The approach’s CAGR of 34.40% highlights consistent growth, though the Sharpe ratio of 0.75 and 0.00% maximum drawdown suggest minimal downside risk.

CEO Commentary

CEO Jay Chaudhry highlighted 26% ARR growth and 35% RPO growth, emphasizing leadership in Zero Trust and AI security. Strategic priorities include AI-driven security, Zero Trust Branch expansion, and data security consolidation via Zflex, which generated $175M TCV.

Guidance

CFO Kevin Rubin guided Q2 2026 revenue to $797–799M (23% YoY growth) and FY2026 ARR to $3.698B–3.718B (22.7–23.3% growth). Free cash flow margins are expected to expand to 26–26.5% as the company invests in AI security and agentic operations.

Additional News

Zscaler announced a revised non-GAAP tax rate of 21% for FY2026, aligning with new legislation. The company also integrated SPLX technology to enhance AI security offerings, aiming to address emerging threats. Institutional ownership rose to 52.52%, reflecting confidence in its long-term growth prospects.

Financial Health Analysis

Zscaler’s gross margin of 76.87% highlights operational efficiency, but its -4.76% operating margin and -1.55% net margin underscore ongoing profitability challenges. The current ratio of 2.01 and debt-to-equity ratio of 1 indicate manageable liquidity and leverage.

Valuation & Market Sentiment

With a P/S ratio of 16.78 and P/B ratio of 25.48, Zscaler trades at a premium. Analysts target a $331.44 price, while a 34.13 RSI suggests oversold territory. Institutional ownership at 52.52% contrasts with insider selling activity, signaling mixed investor sentiment.

Risk Assessment

Zscaler’s beta of 1.2 reflects higher volatility, and sector risks include rapid innovation cycles and competitive pressures. The company’s Altman Z-Score of 6.26 indicates low bankruptcy risk, but insider transactions warrant caution.