Zscaler (ZS) Stock Price Pullback Meets Record Margin Strength

Zscaler dropped about 4.5% today to US$169.80, even though the latest quarter delivered exactly what long term cybersecurity investors tend to look for. Revenue reached about US$898 million and annual recurring revenue climbed to US$3.8b. The stock had run up roughly 30% over the past three months, so this pullback reflects expectations resetting more than a broken story.

The real headline is margin power. Zscaler posted an about 24.3% non GAAP operating margin and a free cash flow margin of about 23% for the year. That profitability profile will shape how investors think about the next few years, not just this week’s price move.

Is Zscaler a genuine bargain on 8.3x P/S and a share price about 34.5% below the stated DCF fair value, or is the unprofitable trailing twelve month record doing the talking? Compare revenue, earnings forecasts and current multiples side by side in our valuation analysis for Zscaler.

Q4 2026 Earnings Summary

• Revenue (Q4 2026 vs. Q4 2025): US$898.2m vs. US$719.2m (solid year on year increase).
• Net Income (Q4 2026 vs. Q4 2025): loss of US$3.4m vs. loss of US$17.6m (loss narrowed meaningfully).
• Basic EPS (Q4 2026 vs. Q4 2025): loss of US$0.02 per share vs. loss of US$0.11 per share (per share loss reduced).
• Non GAAP Operating Margin (FY 2026 vs. FY 2025): about 24.3% vs. prior year margin not specified (record margin level highlighted by Zscaler).

Prefer clean, visual charts instead of scrolling through pages of raw numbers and footnotes? See Zscaler’s full financial picture with a clear focus on its valuation in the company report for Zscaler.

Testing the Zscaler AI and Zero Trust Upside

Bulls argue Zscaler is turning Zero Trust and AI security leadership into durable, high quality growth. The latest quarter gives that view real data to lean on. Revenue and ARR each grew 25% and ARR reached US$3.8b, which lines up with the idea of large enterprises standardising on the platform. Record non GAAP operating margin of 24.3% and free cash flow margin of 23% show the promised operating leverage is now visible, not theoretical. Large deal activity also backs the wallet share story, with about 785 customers above US$1m ARR and the count of customers above US$10m ARR nearly doubling. Z Flex TCV of more than US$1.7b for FY26 and typical 30% ARR uplift support the thesis that bundled, multi year commitments are working. The caveat is FY27 guidance that points to mid teens ARR and revenue growth, which is slower than the recent 25% pace.

Stress testing the Zscaler bear concerns

Bears focus on slowing growth, competitive pressure and the risk that heavy AI and go to market spend caps margins. The FY26 print answers part of that. Zscaler delivered 25% revenue and ARR growth with roughly 80% gross margin and a 24.3% non GAAP operating margin, so the feared margin compression has not shown up yet. Free cash flow margin of 23% also suggests AI and infrastructure capex remain controlled so far. At the same time, FY27 guidance for ARR and revenue growth of about 17% validates concerns that the high 20s growth phase is moderating. Net new ARR excluding Red Canary grew 17%, which is below headline ARR growth and gives some support to worries about organic momentum. The stock reaction, with the price down 4.5% on the day after the release, shows that slower guided growth is front of mind for cautious investors.

After a guidance reset like this, it is worth asking whether slowing ARR growth and insider selling are early warnings. Review our independent risk analysis for Zscaler which shows 1 important warning sign

Stay Ahead With Simply Wall St

If Zscaler’s mix of 25% ARR growth, expanding margins and a pullback from recent highs has your attention, register for free with Simply Wall St and add it to a Watchlist to track the share price against fair value and watch how sentiment reacts to each earnings update. Once you decide to take a position, use the Portfolio Command Center to cut through day to day noise and focus on the key changes to revenue, margins and guidance that matter to your holdings. For a longer term view, lean on the Community to see how other investors are interpreting new data points around competition, AI spend and growth quality. By surfacing potential catalysts and risks early, Simply Wall St helps you stay ahead of the market instead of reacting to it after the fact.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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