Zscaler Inc. reported first‑quarter fiscal 2026 results that surpassed expectations, with revenue of $788.1 million—up 26% year‑over‑year—and an adjusted earnings per share of $0.96, beating the consensus estimate of $0.85 by $0.11 (a 13% beat). Annual recurring revenue climbed to $3.204 billion, a 26% increase from the prior year, while gross margin contracted to 79.9% from 80.6% in 2025, reflecting a shift toward higher‑margin AI‑security and Zero Trust offerings and the cost of recent product launches.
The quarter’s performance outpaced the previous fiscal year’s Q4 results, where revenue was $767.5 million and adjusted EPS was $0.89. Compared with Q1 2025, revenue grew 26% and EPS rose from $0.77 to $0.96, underscoring accelerated demand for Zscaler’s cloud‑native security platform. The company’s ARR growth of 26% also outpaced the 21% growth seen in Q4 2025, indicating a strong momentum in subscription renewals and new customer acquisition.
Segment analysis shows that the AI‑Security and Zero Trust Everywhere pillars drove the majority of revenue growth, supported by the recent acquisitions of Red Canary and SPLXAI, which added advanced threat detection and AI‑powered analytics to the platform. These additions broadened the product mix and increased pricing power, but also introduced short‑term cost pressure that contributed to the slight gross margin contraction. The company’s Data Security Everywhere segment continued to expand, adding new customers in regulated industries that require end‑to‑end data protection.
Gross margin compression was offset by a 21.8% non‑GAAP operating margin, up from 20.5% in the prior year, reflecting efficient cost management and the scaling of high‑margin services. The company’s Rule‑of‑78 performance—combining revenue growth and free cash flow margin—remains above the typical Rule‑of‑40 benchmark for SaaS firms, signaling healthy cash generation relative to growth.
Management raised its outlook for the second quarter, projecting revenue of $797 million to $799 million and adjusted EPS of $0.89 to $0.90, and reaffirmed the full‑year revenue guidance of $3.282 billion to $3.301 billion and adjusted EPS of $3.78 to $3.82. The guidance increase, while modest, signals confidence in sustained demand for AI‑security and Zero Trust solutions, and reflects the company’s expectation of continued margin improvement as new product revenue matures.
Analysts responded positively to the earnings beat, with 21 analysts revising their earnings estimates upward. While the market reaction was mixed, the consensus view remains that Zscaler’s strong execution and strategic focus on AI and Zero Trust position it well for continued growth.
"Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform," said Jay Chaudhry, Chairman and CEO. "With over $3.2 B in ARR, growing over 25% year‑over‑year, we are expanding our best‑in‑class AI Security solutions to solve emerging security challenges."
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