Zscaler Inc. reported fiscal second‑quarter 2026 results that surpassed analyst expectations, with revenue reaching $815.8 million, a 26% year‑over‑year increase from $647.9 million in Q2 FY25. The growth was driven by robust demand for the company’s Zero Trust and AI Security platforms, which together contributed a significant portion of the top‑line expansion.
Adjusted earnings per share climbed to $1.01, beating the consensus estimate of $0.90 by $0.11. The earnings beat was largely attributable to disciplined cost management and a favorable product mix that favored higher‑margin AI‑enabled services, offsetting the impact of a modest increase in operating expenses related to the Red Canary acquisition.
Annual recurring revenue grew 25% year‑over‑year to $1.02 billion, a figure that includes a 21% organic increase when the Red Canary contribution is excluded. The organic growth slowdown, from 22% in the prior quarter to 21% in Q2 FY26, has become a focal point for investors, as it signals a deceleration in the core business momentum that underpins the company’s valuation.
Management raised its full‑year revenue outlook to $3.309 billion–$3.322 billion, up from the previous $3.28 billion–$3.30 billion range, and lifted adjusted EPS guidance to $3.99–$4.02, compared with $3.78–$3.82 previously. The guidance increase reflects confidence in continued demand for AI‑powered security solutions and the expansion of the company’s AI‑security portfolio, while also acknowledging the contribution of the Red Canary acquisition to the top‑line.
Non‑GAAP operating margin expanded to 22.2%, an improvement over the prior year’s 21.8%, driven by higher gross margin and efficient scaling of the cloud‑native platform. Gross margin rose to 80.2%, up from 80.0% in the prior year, reflecting pricing power in high‑margin AI services and a favorable mix shift away from legacy products.
CEO Jay Chaudhry emphasized that Zscaler is “the cybersecurity platform for the AI age,” noting that the company’s Zero Trust architecture is uniquely positioned to secure the speed and scale of AI workloads. CFO Kevin Rubin highlighted that the company achieved an all‑time high in profitability, with non‑GAAP operating margin over 22%, and that disciplined execution enabled a Rule‑of‑62 performance year‑to‑date.
Despite the headline‑beat, market participants focused on the organic growth deceleration and the extent to which the guidance lift was driven by the Red Canary acquisition. Analysts noted that the company’s valuation, at roughly 7× revenue, reflects a maturing SaaS multiple, and that investors are seeking stronger organic momentum to justify higher multiples.
The earnings release underscores Zscaler’s continued ability to generate top‑line growth and maintain healthy margins, but it also highlights the need for the company to accelerate organic demand in its core AI and Zero Trust segments to sustain investor confidence and support future valuation growth.
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