Zscaler (ZS) Shares Plunge 5.16% Intraday on Data Breach Fears Despite Strong Q4 Earnings

Zscaler (ZS) shares fell 1.45% on Wednesday, marking a third consecutive day of declines with a cumulative drop of 3.51% over the past three sessions. The stock touched its lowest level since May 2025, with an intraday decline of 5.16%. The selloff reflects persistent market skepticism despite the company’s strong fourth-quarter financial results and AI-driven growth momentum.

Zscaler reported Q4 earnings of $0.89 per share on $719.23 million in revenue, surpassing analyst estimates by 170 basis points and delivering 21.3% year-over-year revenue growth. However, post-earnings, the stock continued its downward trajectory, trading below its 52-week high of $318.46. Analysts attribute the prolonged weakness to lingering concerns over a recent data breach, which has undermined confidence in the company’s core security infrastructure despite its robust financial performance.

The cybersecurity provider’s AI-powered zero-trust platform has driven significant demand, aligning with the global shift toward AI integration in enterprise IT systems. Zscaler’s cloud-native architecture is positioned to benefit from rising spending on AI-driven security solutions, with key metrics like annual recurring revenue and deferred revenue growing 22% and 30%, respectively. Management highlighted expanded customer adoption and margin resilience, with adjusted net income rising 26.7% year-over-year.

Financial strength remains a cornerstone of Zscaler’s appeal. Free cash flow surged 24% to $171.9 million in Q4, while liquidity metrics and a low debt-to-equity ratio underscore its ability to fund innovation and maintain flexibility. Despite these fundamentals, the options market signals caution, with put/call volume ratios near historical extremes and heavy put option activity suggesting hedging against further declines. Analysts remain largely optimistic, with 32 of 43 firms holding a “Buy” rating and a revised price target of $303.60 implying a 16% upside from current levels.

While technical indicators like the 120-day moving average could act as a near-term floor, the stock’s path to recovery remains clouded by macroeconomic uncertainties and reputational risks. Zscaler’s long-term outlook hinges on its ability to capitalize on AI-driven cybersecurity trends and address lingering concerns over its security posture. For now, the market appears to be discounting both its growth potential and operational strengths, leaving investors to weigh the company’s strategic positioning against near-term volatility.