TenQ

The Zscaler story

Zscaler provides cloud security between workers and applications, with expansion beyond user subscriptions testing whether broader platform adoption can outpace the spending needed to support it.

Written from Zscaler's own filings with the SEC, and rewritten when it publishes a new earnings release. Updated 2026-09-30.

  • $199.39share price, last close
  • $32.5Bmarket value
  • 15/36TenQ Score checks passed
  • 66.9%growth a year the price assumes

The story in brief

  • Growth extends beyond users. Management attributed growth in the quarter to July 2026 partly to solutions not priced by user count, Z-Flex momentum and record large-deal activity.
  • Acquisitions lift reported growth. Annual recurring revenue grew 25% to $3,771 million in the quarter to July 2026, but excluding Red Canary it grew 20% to $3,630 million.
  • Cash margins narrowed. Free cash flow margin fell to 7% in the quarter to July 2026 from 24% in the prior-year quarter as capital expenditures and internal software investment increased.

What drives the business

  • Zscaler's Zero Trust Exchange replaces broad corporate network access with connections governed by identity and business policy, extending its security platform from workers to devices, workloads and AI agents.
  • Its fiscal 2026 business description lists approximately 11,000 customers globally, including over 40% of the Forbes Global 2000 and over 50% of the Fortune 500.
  • Zscaler Internet Access protects connections to external services, while Zscaler Private Access connects users to authorized internal applications without granting broad network access.
  • The platform's expansion into branch networks, cloud workloads, AI security, data protection and security operations creates avenues for growth beyond subscriptions tied to worker counts.
  • In the quarter to July 2026, Zscaler added $246 million in net new annual recurring revenue, while net new annual recurring revenue excluding Red Canary grew 17%.

What the price assumes

At $199.39, the TenQ reverse DCF implies free cash flow after stock pay growing 66.9% a year for ten years, using a 10.2% discount rate.

That compares with delivered growth of -46.8% a year over the last 2 fiscal years and the TenQ check's bar of -21.4%, which moves that historical rate halfway toward 4%.

Stock-based pay of $822 million nearly matched free cash flow of $852 million over the last twelve months, making the distinction between reported cash generation and cash flow after stock pay central to that assumption.

Value ZS on your own assumptions

What could change the story

  • Capital expenditures and internal software investment reached $218.5 million in the quarter to July 2026 versus $78.7 million in the prior-year quarter, showing how infrastructure spending can absorb operating cash generation.
  • Revenue growth over the last twelve months was 25.4%, below the 27.5% annual pace over the last three years, while fiscal 2027 revenue guidance calls for growth of 16.6% to 17.5%.
  • A record non-GAAP operating margin of 24% in the quarter to July 2026 coexisted with a GAAP operating loss of $15.5 million, leaving reported profitability unresolved.
  • Shares increased 10.5% over 3 years, so growth in the business has also come with dilution.
  • The expansion into new products depends on customer acceptance and execution, and Zscaler identifies AI use, software bugs and lengthy sales cycles as risks.

What to watch next

  • For the first quarter of fiscal 2027, Zscaler expects revenue of $935 million to $939 million and a non-GAAP operating margin of 23%.
  • Fiscal 2027 annual recurring revenue guidance of $4.396 billion to $4.426 billion makes acquisition-excluded growth and contributions from products beyond user subscriptions important measures of the platform's expansion.
  • The fiscal 2027 free cash flow margin outlook of approximately 23.0% to 23.5% puts capital expenditures, internal software investment and operating cash generation at the center of the next releases.

Sources

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