Zscaler's third quarter results were met with a negative market reaction despite the company exceeding Wall Street's expectations for both revenue and adjusted earnings per share. Management highlighted the acceleration of growth across its three key pillars—AI security, Zero Trust Everywhere, and Data Security Everywhere. CEO Jay Chaudhry attributed the quarter’s performance to robust demand for the company’s AI-focused offerings and the rapid adoption of its Zero Trust platform. He emphasized that “ARR from these three growth pillars accelerated in the quarter,” underlining their importance to Zscaler’s ongoing momentum.
Is now the time to buy ZS? Find out in our full research report (it’s free for active Edge members).
Zscaler (ZS) Q3 CY2025 Highlights:
- Revenue: $788.1 million vs analyst estimates of $773.6 million (25.5% year-on-year growth, 1.9% beat)
- Adjusted EPS: $0.96 vs analyst estimates of $0.86 (11.4% beat)
- Adjusted Operating Income: $171.9 million vs analyst estimates of $167.9 million (21.8% margin, 2.4% beat)
- The company slightly lifted its revenue guidance for the full year to $3.29 billion at the midpoint from $3.27 billion
- Management raised its full-year Adjusted EPS guidance to $3.80 at the midpoint, a 3.8% increase
- Operating Margin: -4.6%, in line with the same quarter last year
- Annual Recurring Revenue: $3.20 billion vs analyst estimates of $3.16 billion (25.5% year-on-year growth, 1.4% beat)
- Billings: $671.4 million at quarter end, up 29.9% year on year
- Market Capitalization: $38.8 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Zscaler’s Q3 Earnings Call
- Brad Zelnick (Deutsche Bank) asked about the acceleration potential of Zero Trust Branch. CEO Jay Chaudhry emphasized strong demand and a growing pipeline, stating only 10% of enterprise customers have adopted so far.
- Meta Marshall (Morgan Stanley) sought clarity on Red Canary’s integration and performance. CFO Kevin Rubin reported Red Canary is performing slightly ahead of expectations but remains immaterial to overall results.
- Tal Liani (Bank of America) questioned the underlying drivers of revenue growth and competition. Chaudhry pointed to strength in the three core pillars and stated the competitive landscape has not changed significantly.
- Gray Powell (BTIG) inquired about the impact and future of the Z Flex program. Rubin highlighted increased customer contract commitments and better revenue visibility from longer, more flexible agreements.
- Fatima Boolani (Citi) asked about the SAP RISE migration opportunity. Chaudhry explained that Zscaler’s architecture eliminates the need for legacy firewalls and special access routes, streamlining SAP cloud adoption.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace of adoption for new AI security modules, (2) further expansion of Zero Trust Everywhere and the ability to win large multi-module deals, and (3) customer uptake and cross-sell success within the Z Flex program. Additionally, we will watch for the margin trajectory as new products mature and the impact of recent acquisitions on both product innovation and go-to-market execution.
Zscaler currently trades at $243.03, down from $290.50 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).
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