Investing analyses

ZS Zscaler Inc
Sectorother
Mkt cap—
Allocation—
Statuswatchlist
ScreenMARGINAL 2/6
Atlas4.0/5

atlasStrong

2026-04-03 · earnings-review · Zscaler delivered a clean Q2 that confirms the re-acceleration thesis: revenue +25 · Conviction 4/5

Open analysis → · PDF unavailable

Preview
# ZS — Q2 FY26 Earnings Review (Atlas)

> Date: 2026-04-03
> Quarter: Q2 FY26 (January 31, 2026)
> Market cap: $21.8B | EV: ~$19.9B | EV/TTM Rev: 6.6x | Revenue growth: 25.9% YoY
> Stock price: $136.63 | 52-week range: $128–$337

## Verdict

Zscaler delivered a clean Q2 that confirms the re-acceleration thesis: revenue +25.9% YoY (beat guide by 2.2%), ARR +24.4%, RPO +31%, Non-GAAP operating margin at an all-time high of 22.2%. The numbers were in-line to slightly better than expected on every headline metric. The concerns I flagged — organic net new ARR growth, SBC burden, Red Canary churn — remain unresolved but are not worsening. At 6.6x EV/TTM revenue, the market is pricing in a terminal deceleration story that leading indicators continue to contradict. **Conviction: 4/5.**

## Qualification Gate

| Criterion | Threshold | Actual | Verdict |
|-----------|-----------|--------|---------|
| Revenue YoY growth | >30% | 25.9% | **FAIL** — but re-accelerating from 21.3% trough; at $3B+ TTM, 26% growth = $168M incremental quarterly revenue |
| Gross margin | >60% | 76.6% GAAP / 80.2% Non-GAAP | PASS |
| Revenue per quarter | >$50M | $815.8M | PASS |
| Data availability | 4+ quarters | 19 quarters in DB | PASS |
| Share dilution | <10% annual | ~3.9% YoY (153.7M to 159.7M GAAP diluted) | PASS |
| GAAP profitability trajectory | Improving or positive | GAAP net loss -$34.3M, widened from -$7.7M YoY; driven by acquisition-related SBC | **MARGINAL** — Non-GAAP expanding steadily; GAAP distorted by Red Canary/SPLX |

**Gate result: Conditional pass.** The growth rate miss reflects scale, not deterioration. RPO +31% and ARR re-acceleration both signal the growth rate will sustain at 24-26% through FY26. Proceeding with full analysis.

## Six-Factor Score

| Factor | Rating | Detail |
|--------|--------|--------|
| Growth | Adequate | Revenue +25.9% YoY, ARR +24.4%, RPO +31%. Below 30% threshold but re-accelerating from 21.3% trough. At $3B+ TTM scale, this is strong. |
| Tra

*…truncated*

wsmStrong

2026-04-08 · earnings-review · Conviction 4/5

Open analysis → · PDF unavailable

Preview
# ZS — Q2 FY26 Earnings Review (WSM)

> Date: 2026-04-06
> Quarter: Q2 FY26 (January 31, 2026)
> Market cap: ~$22.3B | EV: ~$20.5B | EV/Run-rate Rev: 6.3x | Revenue growth: 25.9% YoY
> Stock price: $138.44 | 52-week range: $128–$337

## Verdict

**Beat-and-raise. Re-acceleration confirmed. RPO divergence widening. But the organic engine is limping at +7% and SBC is out of control.** This is a fundamentally sound quarter bolted onto a company that the market has given up on — 60% off highs while growth is inflecting upward. The leading indicators are screaming that revenue sustains at 24-26% through FY27. At 6.3x run-rate revenue vs PANW at 13x and CRWD at 18.7x, the market is handing you a $3B+ revenue cybersecurity leader growing faster than both for a third of the price. I'm buying this dislocation. The concerns — SBC at 27%, Red Canary churn, organic net new ARR at +7% — are real and need monitoring, but they're priced in and then some at this multiple.

**Thesis: Intact — Strengthening.** Conviction 4/5.

## The Numbers

### Revenue & Growth (QoQ Grid — The Real Picture)

This is how you read ZS. The Q1 (Oct) quarter is the seasonal monster. Q2 (Jan) is always the softest sequential quarter. Compare like-for-like:

| | FY22 | FY23 | FY24 | FY25 | FY26 | Trend |
|---|---|---|---|---|---|---|
| **Q1 (Oct)** QoQ % | 30.7% | 24.0% | 18.6% | 5.9% | **9.6%** | ↑ Recovery |
| **Q2 (Jan)** QoQ % | 10.9% | 9.0% | 5.7% | 3.2% | **3.5%** | → Stable (seasonal trough) |
| **Q3 (Apr)** QoQ % | 12.2% | 8.0% | 5.4% | 4.6% | — | |
| **Q4 (Jul)** QoQ % | — | 8.7% | 7.2% | 6.1% | — | |

**What the grid tells you:** Q2 FY26 QoQ of 3.5% looks pathetic in isolation. But Q2 is *always* the weakest quarter. Compare Q2 FY26 (3.5%) to Q2 FY25 (3.2%) and Q2 FY24 (5.7%). The FY26 Q2 reversed the deceleration trend from FY24→FY25 — modestly, but it reversed it. And Q1 FY26 at 9.6% was a massive step-up from Q1 FY25's 5.9%. The Q1→Q2 seasonal fade pattern ($169M→$28M incremental adds) is con

*…truncated*
Rolling earnings (raw)
# ZS — Zscaler Rolling Earnings Summary

> Last updated: 2026-04-03
> Window: Q3 FY25 — Q2 FY26 (4 quarters)
> FY ends: July 31

## Trajectory

Revenue re-accelerated from 21.3% YoY trough (Q4 FY25) to 25.9% (Q2 FY26) over 4 quarters, with leading indicators (RPO +31%, ARR +24.4%) confirming durability. Non-GAAP operating margin reached all-time high of 22.2%. SBC spiked to $220M in Q2 FY26 (27% of revenue) — the primary headwind.

## Financial Grid (4 Quarters)

| | Q3 FY25 | Q4 FY25 | Q1 FY26 | Q2 FY26 |
| | Apr-25 | Jul-25 | Oct-25 | Jan-26 |
|---|---|---|---|---|
| Revenue ($M) | 678.0 | 719.2 | 788.1 | 815.8 |
| YoY % | 22.6% | 21.3% | 25.5% | 25.9% |
| QoQ % | 4.6% | 6.1% | 9.6% | 3.5% |
| Beat % | -- | +1.9% | +2.0% | +2.2% |
| GM % [GAAP] | 77.0% | 76.0% | 76.6% | 76.6% |
| GM % [nGAAP] | 80.0% | 79.0% | -- | 80.2% |
| OM % [nGAAP] | 21.6% | 22.1% | 21.8% | 22.2% |
| NM % [nGAAP] | 20.2% | 20.4% | 20.2% | 20.7% |
| EPS [nGAAP] | $0.84 | $0.89 | $0.96 | $1.01 |
| FCF ($M) | 119.5 | 171.9 | 413.3 | 169.1 |
| FCF Margin | 17.6% | 24.0% | 52.4% | 20.7% |
| SBC ($M) | 167.8 | 180.8 | 188.6 | 220.4 |
| SBC % Rev | 24.7% | 25.1% | 23.9% | 27.0% |
| ARR ($M) | 2,890 | 3,015 | 3,204 | 3,359 |
| Net New ARR ($M) | +190 | +125 | +189 | +156 |
| Verdict | Near-trough | **Growth trough** | Re-acceleration begins | Re-acceleration confirmed |

## Promise Tracker

| Quarter Made | Promise | Outcome | Status |
|-------------|---------|---------|--------|
| Q3 FY25 | Q4 FY25 Rev: $705-707M | Actual: $719.2M (+1.9% beat) | ✓ Met |
| Q3 FY25 | FY25 Rev: $2.659-2.661B | Actual: ~$2,672M | ✓ Met |
| Q4 FY25 | Q1 FY26 Rev: $772-774M | Actual: $788.1M (+2.0% beat) | ✓ Met |
| Q4 FY25 | FY26 Rev: $3.265-3.284B | Raised to $3.309-3.322B | ✓ Met (raised) |
| Q1 FY26 | Q2 FY26 Rev: $797-799M | Actual: $815.8M (+2.2% beat) | ✓ Met |
| Q1 FY26 | FY26 Rev: $3.282-3.301B | Raised to $3.309-3.322B | ✓ Met (raised) |
| Q2 FY26 | Q3 FY26 Rev: $834-836M | -- | Pending |
| Q2 FY26 | FY26 Rev: $3.309-3.322B | -- | Pending |
| Q2 FY26 | FY26 ARR: $3.730-3.745B | -- | Pending |
| Q2 FY26 | FY26 FCF Margin: 26.5-27% | -- | Pending |
| Q2 FY26 | FY26 nGAAP EPS: $3.99-4.02 | -- | Pending |
| Q2 FY26 | Red Canary ARR ~$130M FY end | $114M at Q2 | Pending |
| Q2 FY26 | Red Canary churn stabilization | No timeline given | Pending (watch Q3) |

**Pattern:** Management guides conservatively and consistently beats by ~2pp. 4 consecutive beats. No missed guidance in tracked history. FY26 guide raised twice (cumulative +$38M vs initial).

## Language Shift Monitor

| Quarter | Key Narrative | Tone |
|---------|--------------|------|
| Q3 FY25 | Deceleration acknowledged; seasonal FCF trough | Cautious |
| Q4 FY25 | Growth trough; FY26 guide issued; reaccel narrative beginning | Neutral-to-cautious |
| Q1 FY26 | Red Canary closed; "Rule of 62" first mention; reaccel confirmed | Confident |
| Q2 FY26 | "Cybersecurity platform for AI age"; AI mentioned 12+ times; MCP/agentic raised unprompted; "Rule of 62" H1 | Confident with selective transparency |

**Shift observed:** Tone evolved from cautious (Q3 FY25 trough) to confident (Q1-Q2 FY26). AI references increased dramatically — from absent to the dominant framing device. "Rule of 62" is a self-coined metric introduced in Q1 FY26 and repeated in Q2. Management proactively disclosed Red Canary churn but deflected on specifics.

**New in Q2 FY26:** MCP (Model Context Protocol) raised for first time. ZFlex TCV disclosed for first time ($290M). Metered usage >25% of ACV disclosed for first time. All raised unprompted — management is seeding an AI/consumption narrative.

## Analyst Concern Tracker

| Concern | First Raised | Current Status |
|---------|-------------|----------------|
| Revenue growth deceleration | Q2 FY25 | **Resolving** — re-accelerated from 21.3% to 25.9% over 4 quarters |
| Red Canary integration risk | Q1 FY26 | **Active** — churn elevated, no timeline, ARR stable at $114M |
| NRR non-disclosure | Q1 FY25 | **Active** — company ceased reporting FY24; no proxy disclosed |
| Core ZIA/ZPA deceleration | Q2 FY26 | **Active** — mid-teens growth vs total +24%; ZTE migration may explain |
| EMEA deceleration | Q2 FY26 | **New** — +18% vs Americas +31%; management did not address |
| SBC burden | Q2 FY26 | **New** — spiked to $220M (27% of revenue); management silent |
| ZFlex cannibalization | Q2 FY26 | **New** — no data on cannibalization vs expansion split |

## Source Log

| Date | Persona | What Changed |
|------|---------|-------------|
| 2026-04-03 | atlas | Created _ROLLING.md. Populated 4-quarter grid (Q3 FY25 - Q2 FY26), promise tracker, language shift monitor, analyst concern tracker from scout brief and Q2 FY26 earnings data. |
| 2026-04-06 | wsm | Reviewed Q2 FY26. Confirmed re-acceleration thesis. Added SBC concern to analyst tracker (worst quarter ever at 27%). Agree with all existing tracker entries. Initiating position at 5-7%. |
FQCalRev (M)YoYGMOp MFCF M
Q2_FY26 Jan-2026 815.8 25.9% 76.6% -6.3% 20.7%
Q1_FY26 Oct-2025 788.1 25.5% 76.6% -4.6% 52.4%
Q4_FY25 Jul-2025 719.2 21.3% 76.0% -4.5% 24.0%
Q3_FY25 Apr-2025 678.0 22.6% 77.0% -3.7% 17.6%
Q2_FY25 Jan-2025 647.9 23.4% 77.1% -6.2% 22.1%
Q1_FY25 Oct-2024 628.0 26.4% 77.5% -4.9% 50.0%
Q4_FY24 Jul-2024 592.9 30.1% 78.0% -4.6% 23.0%
Q3_FY24 Apr-2024 553.2 32.1% 78.6% -0.5% —
Q2_FY24 Jan-2024 525.0 35.4% 77.7% -8.7% —
Q1_FY24 Oct-2023 496.7 39.7% 77.6% -9.3% 46.7%
Q4_FY23 Jul-2023 455.1 — 77.4% -9.8% —
Q3_FY23 Apr-2023 418.8 46.0% 77.1% -13.3% —
Q2_FY23 Jan-2023 387.6 51.6% 77.4% -16.8% —
Q1_FY23 Oct-2022 355.5 54.2% 78.5% -19.4% 29.1%
Q3_FY22 Apr-2022 286.8 62.6% 77.7% -30.2% —
Q2_FY22 Jan-2022 255.6 62.8% 77.4% -32.8% —