Zscaler Slides 2.58 Despite Record $370M Trading Volume and Strong Revenue Growth

Market Snapshot

Zscaler (ZS) closed on April 1, 2026, at $136.67, representing a 2.58% decline in share price compared to the previous day's close of $140.29. Despite the drop in price, the stock saw a surge in trading volume, with $370 million in trading activity, a 37.94% increase from the prior day, making it the top traded stock of the day. The stock traded within a range of $132.62 to $139.50, with an after-hours price of $136.50. The market cap for Zscaler stood at $21.975 billion, and the stock is currently trading at a beta of 1.12, suggesting higher volatility than the market. Meanwhile, Zscaler is expected to report earnings on May 28, 2026, and analysts have set a 12-month price target of $233.70, implying a potential upside of over 70% from the current level.

Key Drivers

Zscaler’s recent earnings report for the quarter ending January 31, 2026, revealed a revenue of $815.75 million, an increase from $647.9 million in the same period the prior year. However, the company posted a GAAP net loss of $34.31 million, worsening from a $7.72 million loss in the prior year. The earnings print suggests ongoing challenges in achieving profitability despite strong revenue growth. The GAAP net loss margin widened to -4.2061%, compared to -1.1921% a year prior, signaling a deterioration in profitability. This negative earnings momentum likely contributed to the recent 2.58% decline in stock price. Additionally, the trailing twelve-month EPS is negative at -0.43, further underscoring the company’s unprofitable position in the short term.

Zscaler’s revenue growth, while impressive, appears to be outpacing its ability to generate net income. The firm's operating income for the period was -$30.538 million, and the EBIT margin was -3.8748%, showing that the company continues to invest heavily in growth. The non-GAAP operating margin improved to 22.2%, indicating some progress in controlling costs and improving operational efficiency, but it is still not enough to turn the firm profitable under GAAP accounting. The firm’s strategic focus on AI security and Zero Trust architecture is driving customer expansion, particularly in the enterprise segment, which could be a long-term tailwind.

Analysts remain optimistic about Zscaler's long-term potential, as reflected in the strong consensus ratings. For example, Gray Powell from BTIG reiterated a Buy rating with a $209.00 price target, while Barclays maintained a Buy rating with a $180.00 target. The analyst consensus is Strong Buy, with a $231.64 price target, representing a 73.96% upside from the current price. However, the recent earnings miss, particularly in terms of profitability, may have raised some concerns among investors, leading to the recent pullback in the stock.

Zscaler's business model is also characterized by significant operating expenses. Other operating expenses totaled $634.697 million for the quarter ending January 31, 2026, compared to $604.159 million for the prior year period. R&D expenses reached $197.639 million, highlighting the company’s commitment to innovation and product development. The firm also reported a free cash flow margin of 36%, which is positive but not sufficient to offset the net loss. The Rule of 62, which measures revenue growth and free cash flow margin, was achieved, suggesting strong operational efficiency.

Looking ahead, Zscaler has provided guidance for the remainder of the fiscal year. For Q3 FY2026, the company expects earnings of $1.02 per share and revenue of $831.5 million. For Q4, it forecasts $1.10 in EPS and $877 million in revenue. These estimates indicate continued growth and are above analyst expectations. The CEO emphasized the importance of innovation and customer base expansion as key growth drivers, as well as the ongoing integration of recent acquisitions. Despite the current earnings challenges, these forward-looking metrics suggest that Zscaler remains on a strong growth trajectory, supported by its strategic initiatives in AI security and Zero Trust architecture.