Freedom analyst Almas Almaganbetov reaffirmed a “Buy” rating on Zscaler (ZS) shares and set a target price of $230. Compared with the share price at the time of publication — $169.80 — this target implies upside potential of about 35.5%.
Zscaler is a U.S. company that develops cloud-based cybersecurity solutions. Its platform verifies users, devices, and applications before granting access to corporate data and secures internet connections, cloud systems, and branch networks. The company’s shares trade on the Nasdaq under the ticker ZS.
Zscaler revenue rose 25%
In the fourth quarter of fiscal 2026, Zscaler’s revenue increased 25% year over year, to $898 million. The result exceeded the upper end of the company’s own guidance of $878 million, Freedom’s estimate of $877 million, and the market consensus at the same level.
Adjusted diluted earnings per share rose 34% to $1.19. The company had expected $1.08–1.09, while Freedom and market participants forecast $1.08 and $1.09, respectively.
Adjusted gross margin reached 80.2% versus 79.3% a year earlier. Adjusted operating margin increased by 2.2 percentage points to 24.3%. The improvement was supported by revenue growth, higher sales-team efficiency, and cost control.
Annual recurring revenue — the expected income from active subscriptions and contracts over the next 12 months — rose 25% to $3.77 billion. Net new ARR totaled $246 million, up 24% year over year. Excluding acquired company Red Canary, organic growth reached 17%.
What a zero-trust platform is
The main growth driver for Zscaler remains demand for the Zero Trust Exchange platform. Its name translates as a “zero-trust platform.” This approach assumes that no user, device, or application is automatically granted access to the corporate network: each connection is verified individually.
The architecture enables employees to work securely with corporate systems from the office, home, or while traveling. It also reduces the risk of an attack spreading within the network if an attacker gains access to a single account or device.
Demand is expanding beyond traditional licenses, whose cost depends on the number of seats. Solutions to secure cloud workloads, branches, and artificial-intelligence system operations accounted for about 30% of Zscaler’s new and upsell contracts in the reporting quarter. Recurring revenue from usage-based products more than doubled over the year.
Additional support for sales comes from the Z-Flex program. It allows customers to enter into multi-year agreements and reallocate spending among Zscaler products without launching a new procurement process. The total contract value of such deals in the fourth quarter exceeded $770 million, up more than 60% versus the prior three months.
Demand for AI protection is rising
Order volume for solutions for the secure use of artificial intelligence rose more than 50% compared with the previous quarter. About 70% of these contracts included products to protect corporate data.
The proliferation of autonomous digital assistants creates new risks for businesses. Such systems can independently access databases, applications, and internal documents, so companies need to control their permissions and actions.
To develop this area, Zscaler acquired Symmetry Systems. That company’s technologies make it possible to analyze relationships between users, applications, and data, as well as identify excessive access rights. Unlike standard credential checks, the solution tracks what operations are actually performed within corporate systems.
Zscaler’s customer base continued to expand. The number of organizations with annual recurring revenue from Zscaler exceeding $1 million rose 18% to 785. The number of customers generating more than $10 million a year nearly doubled. Zscaler products are used by half of the companies in the list of the 500 largest U.S. corporations.
Zscaler guidance beat expectations
For the first quarter of fiscal 2027, management expects revenue in the range of $935–939 million, implying growth of about 19%. The market consensus was $927 million.
Adjusted earnings per share are expected at $1.15–1.16 versus the market estimate of $1.08. Adjusted operating income may come in at $215–217 million, exceeding analysts’ forecast of $209 million.
For all of fiscal 2027, Zscaler projects revenue of $3.908 billion to $3.938 billion and adjusted EPS of $4.86 to $4.90. Market participants had expected $3.89 billion and $4.58, respectively.
Freedom raised its own forecasts and now expects revenue of $3.929 billion and adjusted EPS of $4.88. In fiscal 2028, these figures could increase to $4.578 billion and $5.60, and in 2029 — to $5.287 billion and $6.50.
At the same time, spending on hardware and infrastructure will remain elevated. To process the growing volume of data, the company needs additional servers, memory, and processors. Management also plans to cut about 3% of its workforce and redirect freed-up resources toward developing artificial-intelligence solutions.
Competition in the cybersecurity market is intensifying
The main threat to Zscaler is the strategy of consolidating products on a single platform being pursued by Palo Alto Networks (PANW). This U.S. company builds firewalls, cloud security systems, and software for detecting and investigating cyberattacks. Its shares trade on the Nasdaq under the ticker PANW.
Palo Alto Networks offers customers a unified set of solutions and provides discounts, including free service periods when switching from competitors. Previously, Freedom raised its target price by 57%, citing the prospects for products protecting AI infrastructure.
Competition is also intensifying from CrowdStrike Holdings (CRWD). The company develops the cloud-based Falcon platform, which protects computers and servers, detects suspicious activity, and helps investigate incidents. Its shares trade on the Nasdaq under the ticker CRWD.
CrowdStrike is gradually expanding from endpoint protection into network security, where it overlaps with Zscaler. In June, Freedom raised its target price for CrowdStrike shares to $800 due to rising demand for cloud security and artificial-intelligence solutions.
According to Freedom, Zscaler retains technological advantages and significant potential to expand its customer base. However, the fight for large companies’ budgets will require ongoing investment in research and product development. Additional risks include higher equipment costs, potential customer churn at acquired companies, and the fallout from technological outages in centralized cloud infrastructure.
This is not an individual investment recommendation.