Zscaler (ZS) quarter Q2 Financial Results Summary

2026-05-27 · Stocks · QuoteReporter

Zscaler (ZS) Q3 2026: Revenue Growth Accelerates, Operating Losses Widen — Cautiously Optimistic

Zscaler, Inc. (Nasdaq: ZS) reported its third-quarter fiscal 2026 results, showcasing a robust revenue growth of $850.5 million, which represents an increase of $172.5 million or +25% year-over-year. However, the company also experienced a widening of its operating losses, raising concerns among investors.

Key Financial Metrics

Revenue: $850.5 million, up $172.5 million or +25% YoY
Annual Recurring Revenue (ARR): $3,525 million, up $705 million or +25% YoY
Operating Cash Flow: $198.0 million, down from $211.1 million YoY
Free Cash Flow: $136.0 million, up $16.5 million or +14% YoY
GAAP Loss from Operations: $29.6 million, compared to a loss of $25.4 million YoY
Non-GAAP Income from Operations: $195.8 million, up $49.1 million or +33% YoY
GAAP Net Loss: $13.9 million, compared to a loss of $4.1 million YoY
Non-GAAP Net Income: $177.9 million, up $41.1 million or +30% YoY
GAAP Net Loss per Share: $0.09, compared to $0.03 YoY
Non-GAAP Net Income per Share: $1.08, up $0.24 or +29% YoY

Analyst Opinion

This quarter presents a mixed bag for shareholders. On one hand, Zscaler's revenue and ARR growth are impressive, indicating strong demand for its cloud security solutions. The 25% growth in both revenue and ARR reflects the company's ability to attract new customers and expand existing relationships. Additionally, the non-GAAP income from operations reaching an all-time high of 23% is a positive sign of operational efficiency.

However, the widening GAAP losses and a decline in operating cash flow raise red flags. The GAAP loss from operations increased to $29.6 million, and the net loss per share also widened, which could concern investors looking for profitability. The company must address these losses while maintaining its growth trajectory.

Dividend and Share Buyback

There were no announcements regarding dividends or share buybacks in this quarter's results. The focus remains on growth and expansion, particularly with the recent acquisition of Red Canary and the intent to acquire Symmetry Systems.

Guidance and Future Outlook

Looking ahead, Zscaler provided optimistic guidance for the fourth quarter of fiscal 2026, expecting revenue between $875 million and $878 million, which translates to a growth of approximately 22%. The company also anticipates non-GAAP income from operations to be between $206 million and $208 million, reflecting a growth of 30% to 31%.

For the full fiscal year 2026, Zscaler expects ARR to reach between $3.740 billion and $3.749 billion, indicating a growth of approximately 24%. This is an upward revision from previous guidance, showcasing management's confidence in the company's growth prospects.

Forward Catalysts

Investors should keep an eye on Zscaler's upcoming initiatives, particularly its partnerships with AI-driven companies like OpenAI and Anthropic, which could enhance its cybersecurity offerings. Additionally, the integration of Symmetry Systems is expected to bolster Zscaler's capabilities in managing AI agent communications, a critical area as AI adoption continues to rise.

In conclusion, while Zscaler's growth metrics are encouraging, the company must navigate its profitability challenges carefully. The upcoming quarter will be crucial in determining whether it can sustain its growth while improving its bottom line.

ZSCALER, INC. Condensed Consolidated Statements of Operations

(in thousands, except per share amounts) (unaudited)

Note: All amounts in the table are in thousands.

	Three Months Ended April 30, 2026	Three Months Ended April 30, 2025	Nine Months Ended April 30, 2026	Nine Months Ended April 30, 2025
Revenue	$850,475	$678,034	$2,454,338	$1,953,889
Cost of revenue(1)	$192,652	$155,978	$568,665	$445,938
Gross profit	$657,823	$522,056	$1,885,673	$1,507,951
Operating expenses:
Sales and marketing	$371,941	$314,605	$1,114,449	$928,564
Research and development	$232,281	$169,765	$661,916	$494,879
General and administrative	$83,241	$63,097	$227,083	$180,726
Total operating expenses	$687,463	$547,467	$2,003,448	$1,604,169
Loss from operations	$-29,640	$-25,411	$-117,775	$-96,218
Interest income	$34,043	$31,263	$101,090	$92,189
Interest expense(5)	$-2,700	$-1,966	$-9,048	$-7,448
Other income (expense), net	$-4,074	$677	$-6,310	$-4,911
Income (loss) before income taxes	$-2,371	$4,563	$-32,043	$-16,388
Provision for income taxes(6)	$11,512	$8,688	$27,767	$7,512
Net loss	$-13,883	$-4,125	$-59,810	$-23,900
Net loss per share, basic and diluted	$-0.09	$-0.03	$-0.37	$-0.16
Weighted-average shares used in computing net loss per share, basic and diluted	160,741	154,909	159,662	153,699

(1) Includes stock-based compensation expense and related payroll taxes:

Cost of revenue	$21,629	$18,262	$64,491	$51,674
Sales and marketing	$72,206	$63,937	$225,421	$198,782
Research and development	$88,779	$63,753	$248,704	$188,514
General and administrative	$29,652	$21,857	$87,824	$65,769
Total	$212,266	$167,809	$626,440	$504,739

ZSCALER, INC. Condensed Consolidated Balance Sheets

(in thousands) (unaudited)