Zscalers AI-Driven Growth Cant Stem Widening Losses

Zscaler (ZS) reported fiscal Q2 2026 results on Feb 26, 2026, with revenue rising 25.9% to $815.75 million and non-GAAP EPS of $1.01, exceeding Wall Street estimates. The company raised full-year guidance for ARR, revenue, and non-GAAP net income, citing strong demand for AI and Zero Trust solutions. Despite robust top-line growth, losses widened significantly, and shares fell post-earnings despite the upbeat outlook.

Revenue

Zscaler’s total revenue surged to $815.75 million in fiscal 2026 Q2, reflecting a 25.9% year-over-year increase from $647.90 million in 2025 Q2. This growth underscores the company’s expanding market share in cybersecurity and AI-driven security solutions.

Earnings/Net Income

Zscaler’s financial losses deepened in fiscal 2026 Q2, with a net loss of $34.31 million, a 344.2% increase from the $7.72 million loss in the prior-year period. On a per-share basis, the company reported a $0.21 loss, a 320.0% widening from $0.05 in 2025 Q2. The sustained losses over 10 years highlight persistent financial challenges despite revenue expansion. This indicates that the EPS and net loss figures reflect significant deterioration in profitability.

Price Action

The stock price of Zscaler has climbed 4.92% during the latest trading day, edged down 0.96% during the most recent full trading week, and plummeted 21.99% month-to-date.

Post-Earnings Price Action Review

The strategy of buying Zscaler (ZS) shares after its revenue beat expectations on the earnings release date and selling them 30 days later resulted in poor performance. The strategy had a CAGR of -0.87% and an excess return of -68.84% compared to the benchmark, with a maximum drawdown of 43.86% and a Sharpe ratio of -0.03, indicating significant risk and losses.

CEO Commentary

Jay Chaudhry, CEO, Chairman, and Founder of Zscaler, emphasized the company’s position as the "cybersecurity platform for the AI age," driven by demand for its in-line Zero Trust platform. He highlighted robust growth across three pillars: AI Security, Zero Trust Everywhere, and Data Security, calling the AI-driven market a "massive future growth opportunity." Chaudhry noted Q2 fiscal 2026 results, including 25% ARR growth (21% excluding Red Canary) and non-GAAP operating margin exceeding 22%, underscoring disciplined execution and innovation. The tone was optimistic, with confidence in durable long-term growth from AI adoption and strategic acquisitions like Red Canary.

Guidance

For Q3 fiscal 2026, Zscaler expects revenue of $834–836 million (23% growth), non-GAAP operating income of $187–189 million (28–29% growth), and non-GAAP net income per share of $1.00–1.01. For full-year fiscal 2026, ARR is projected at $3.730–3.745 billion (24% growth, up from prior guidance), revenue at $3.309–3.322 billion (24% growth), non-GAAP operating income of $742–748 million (28–29% growth), and non-GAAP net income per share of $3.99–4.02 (22–23% growth). A revised 21% non-GAAP tax rate (from 23%) and Rule-of-62 fiscal performance (vs. Rule-of-40 benchmark) were cited.

Additional News

Zscaler recently acquired Red Canary to bolster its AI security capabilities, a strategic move to enhance its Zero Trust platform. CEO Jay Chaudhry reiterated confidence in the company’s long-term growth trajectory during a recent investor call, emphasizing AI-driven innovation. Additionally, Zscaler announced a partnership with Eldorado Gold to integrate cybersecurity solutions into critical infrastructure projects, expanding its enterprise footprint.