Zscaler posted its Q3 fiscal 2026 earnings on Tuesday night. The numbers looked good on the surface. But the company’s forecast for the next quarter fell short of what analysts hoped for. That gap sent investors running for the exit.
Zscaler shares fell sharply after the company gave a weaker outlook for future growth than expected. [Yahoo Finance]
The stock fell as much as 25% before markets opened Wednesday morning. By the end of the day, losses settled at around 23%. Billions in market value were gone in a matter of hours. It was a brutal session for anyone holding ZS shares.
The Q3 Numbers Were Actually Strong
Zscaler did well this quarter. The company made $850.48 million, which is 25% more money than it made at the same time last year. Analysts thought it would make $835.38 million, but it made even more. Zscaler also earned $1.08 per share, which was better than the expected $1.01 per share.
The remaining performance obligations at Zscaler were $6.5 billion, which is 30% greater than last year. Zscaler has more customers than ever that are spending over $100,000/year and $1 million/year. These are good indicators for any SaaS company.
Traders react on the New York Stock Exchange as tech stocks faced heavy selling pressure following Zscaler’s weak outlook. [Image Credit: Reuters]
Guidance for Next Quarter Fell Short
The problem was not the past — it was the future. Zscaler guided Q4 revenue between $875 million and $878 million. The midpoint of $876.5 million missed what analysts were looking for. That small miss was enough to spook the market.
The company also gave its first look at fiscal year 2027 growth. Those numbers came in below what Wall Street expected. Investors in high-growth tech stocks do not take growth slowdowns lightly. The reaction in the stock price showed that clearly.
Free Cash Flow Target Gets Cut
Zscaler also trimmed its free cash flow margin target. The new range is 22.8% to 23.3%. That is a step down from the earlier target of 26.5% to 27%. The company said higher capital spending is the reason behind the cut.
That news added fuel to the sell-off. Investors want to see strong profits alongside strong revenue. A lower cash flow target raised questions about how efficiently the company is spending. Some analysts flagged it as a near-term risk worth watching.
Wall Street Firms Cut Their Price Targets
After the earnings report, several big firms lowered their price targets on Zscaler. Rosenblatt cut its target to $200. Piper Sandler went further, setting a new target of $160. Stephens trimmed its target from $225 to $200 but kept its positive rating on the stock.
A decrease of $224 has been placed by Bernstein SocGen as their forecast on the stock; Canaccord’s was also lowered to $210; Citizens made the largest adjustment with their target to drop from $290 to $210; Morgan Stanley took it a step further by downgrading their position on this stock from Overweight to Equal Weight.
However, Zscaler has the backing of most analysts with 27 of the 32 who cover the company currently giving it an investment rating, with an average target of $225.60, indicating they believe Zscaler will substantially rebound from current price levels.
Goldman Sachs and Stephens Point to Slower Growth
Goldman Sachs analyst Gabriela Borges said Zscaler’s outlook reflects a maturing business cycle. She noted that AI has not yet made a big difference to the company’s revenue. Goldman expects the company to grow around 16% to 17% in fiscal year 2027. That is a slowdown from recent years.
Stephens analyst Todd Weller said Q3 results were solid overall. But he noted the weaker outlook for Q4 and FY2027 will likely hurt the stock in the short term. He said growth pressure at Zscaler is becoming clearer. The firm still holds a positive long-term view on the company.
CEO Points to AI as the Path Forward
Jay Chaudhry, CEO of Zscaler, dismissed negative opinion. He stated, “As an AI, Zscaler is perfectly placed to be the best cybersecurity platform.” Chaudhry noted the Zscaler AI Protect suite, where bookings exceeded $100 million. Chaudhry said the long-term story is still strong.
Goldman Sachs raised a key question for the future. Can new AI-driven use cases open up fresh revenue streams for Zscaler? That is something analysts will watch closely in the coming quarters. The answer could shape how the stock performs over the next year.
Jim Cramer Flags Slowing Sales Risk
CNBC host Jim Cramer also weighed in on the Zscaler situation. He warned investors about “slowing sales” ahead for the company. His comments added to the negative mood around the stock. Cramer pointed to the soft Q4 guidance as the main reason for concern.
His warning reflected a wider worry in the market. Tech investors have little patience for companies that miss growth targets. Even a small shortfall can cause outsized moves in a stock. Zscaler found that out the hard way this week.
What Investors Should Watch Going Forward
Zscaler’s share price has dropped by almost 18% this year, while the Nasdaq Index has risen by roughly 14.72% in the same time period, indicating Zscaler is underperforming relative to the market in 2026.
Many analysts continue to expect Zscaler to provide solid long-term investment returns. Zscaler is an ideal fit in the rapidly growing zero trust security area with a strong product offering. As cloud adoption increases, more organizations will require more product solutions for their cloud initiatives. The most critical question moving forward is whether or not Zscaler will accelerate revenue growth attributable to financial year 2027 (FY2027).
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FAQS
Q1: Why was there a fall in Zscaler’s share price?
A1: Zscaler’s stock fell as it provided investors with a less favorable projection for future sales growth.
Q2: Did Zscaler achieve its projected earnings results?
A2: Yes. Zscaler outperformed the estimates of market analysts.
Q3: Revenue reported by Zscaler?
A3: Zscaler’s revenue for the quarter was roughly $850.48 million.
Q4: Investors’ biggest concerns?
A4: Investors were mostly worried about future cash flow and growth prospectus slowing down.
Q5: Analysts responded to the report and changed price targets.
A5: Multiple analysts reduced their price targets however most felt that there is still significant long-term value in the company itself.
Sources
Disclaimer
This article reflects the writer’s views and may not represent Colitco or its partners. It is for general information and learning only. This is financial advice. Please verify the information yourself before making any financial decisions.
