Shares of Zscaler Inc (NASDAQ:ZS) tanked in early trading on Wednesday, even after the company reported upbeat fiscal first-quarter earnings.
Here are some key analyst takeaways:
- Needham analyst Mike Cikos maintained a Buy rating, while reducing the price target from $350 to $310.
- RBC Capital Markets analyst Matthew Hedberg reiterated an Outperform rating and price target of $366.
- BTIG analyst Gray Powell reaffirmed a Buy rating and price target of $365.
- Rosenblatt Securities analyst Catharine Trebnick maintained a Buy rating and price target of $365.
- Guggenheim Securities analyst John DiFucci reiterated a Neutral rating on the stock.
Check out other analyst stock ratings.
Needham: Zscaler's ARR (annual recurring revenue) grew 26% year-on-year to $3.204 billion, exceeding consensus by $22 million. Cikos says management raised the fiscal 2026 guidance by only $21 million at the midpoint.
This is "underwhelming," especially considering the 47.8% growth in Net-New ARR in the first half of the fiscal year, the analyst stated. "We believe this was further exacerbated by management failing to quantify ARR contribution from the Red Canary acquisition," he added.
RBC Capital Markets: Zscaler reported strong fiscal first-quarter results, with 26% and 30% year-on-year growth in revenues and billings, respectively, Hedberg said. ARR growth accelerated from 22% in the previous quarter, he added.
"The acceleration was a positive, but our sense is investors were looking for more color around the source of upside between the organic business and Red Canary," the analyst stated. Although Zscaler's ARR came in higher than consensus by $22 million, it raised the full-year guidance by $21 million, suggesting a slight deceleration to NNARR growth, he further stated.
BTIG: Excluding Red Canary, Zscaler added $104 million in net new ARR. That’s higher than Street estimates of $86 million, Powell said. While positive, an upside was expected to be higher based on "what we thought were normal sequential trends and the historical ratio of revenue to ARR," he added.
Management indicated that the increase to their full-year outlook was mainly due to better organic growth in the core business, the analyst stated. While bears may complain about the lack of ARR upside, Zscaler's total revenue beat was $15 million in the quarter. Compare that to "an average $13MM beat the prior three quarters," he further wrote.
Rosenblatt Securities: Zscaler delivered a "healthy start" to the fiscal year, with 25% year-on-year revenue growth and accelerating ARR growth, both well ahead of Street expectations, Trebnick said. The projected moderation in the fiscal second quarter "is largely attributed to a mix shift toward larger enterprise multimodule deals and ramp time for newer growth vectors," she wrote.
ARR from AI Security grew more than 80% year-on-year, surpassing $400 million, which prompted management to raise the fiscal full-year target to more than $500 million," a signal of the product velocity uptake," the analyst further stated.
Guggenheim Securities: On callbacks, Zscaler's management indicated that Red Canary did not contribute materially to either ARR or revenue, DiFucci said.
Management said its organic growth was higher than internal expectations and similar to the growth of the previous fiscal quarter, which was around 22% year-on-year, the analyst stated. This suggests Red Canary's ARR contribution of approximately $92.7 million, he added.
ZS Price Action: Shares of Zscaler had declined by 10.7% to $258.52 at the time of publication on Wednesday.
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