Zscaler shares fall sharply on weaker-than-expected growth forecast

Zscaler Inc. (NASDAQ:ZS) shares fell much than 31% connected Wednesday aft the unreality information institution shared softer-than-expected guardant guidance, drafting attraction from a humble fiscal 3rd 4th net beat.

For the fiscal 4th quarter, Zscaler projected gross of $875 cardinal to $878 million, somewhat beneath statement expectations of $879 million. The institution besides guided non-GAAP net per stock of $1.08 to $1.09.

More significantly, management’s preliminary fiscal 2027 outlook called for gross and yearly recurring gross (ARR) growth of 16% to 17%, a wide measurement down from existent maturation rates and beneath anterior Street expectations of astir 19% to 20%.

For fiscal Q3, Zscaler reported adjusted net per stock of $1.08, supra expert estimates of $1.01.

Revenue came successful astatine $850.5 million, supra the $835.5 cardinal expected, portion ARR reached $3.53 billion, supra the $3.51 cardinal consensus.

Revenue roseate 25% twelvemonth implicit year, with ARR besides expanding 25% to $3.53 billion. Net caller ARR totaled $166 cardinal successful the quarter, including contributions from the Red Canary acquisition. Excluding that acquisition, integrated ARR maturation was astir 21%, with integrated nett caller ARR maturation of astir 14%.

Profitability trends were mixed. GAAP operating nonaccomplishment widened somewhat to $29.6 million, portion non-GAAP operating income roseate to $195.8 million, oregon 23% of revenue. Non-GAAP nett income accrued to $177.9 million, with diluted net per stock of $1.08, up from $0.84 a twelvemonth earlier. Free currency travel roseate to $136 million, portion currency from operations declined to $198 million.

Deferred gross accrued 25% twelvemonth implicit twelvemonth to $2.48 billion.

Jefferies analysts said the 4th was broadly successful line, but the outlook signals a meaningful reset successful maturation expectations, driven successful portion by caller income enactment turnover and a sharper-than-expected deceleration successful integrated ARR assumptions into fiscal twelvemonth 2027.

They pointed to fiscal third-quarter integrated ARR maturation of 20.6%, with integrated nett caller ARR of $153 million, representing 14% year-over-year maturation and an acceleration from the anterior quarter. However, they said fiscal fourth-quarter guidance implies a slowdown successful integrated ARR maturation to astir 19.6%, adjacent accounting for imaginable upside.

Jefferies added that the fiscal 2027 guidance reset to 16% to 17% ARR maturation reflects a meaningful measurement down from anterior expectations, though they characterized the reset arsenic “much needed and attainable.” They besides noted that the outlook factors successful income enactment turnover and a much cautious stance connected caller logo growth, alongside expectations that the Red Canary concern volition turn much dilatory than the halfway platform.