Zscaler’s shares plunged more than 30% on May 27, marking its worst single-day decline, following a cautious outlook for fiscal 2027 despite better-than-expected Q3 results [1, 2].
The cybersecurity firm posted adjusted earnings per share of $1.08 on $850 million in revenue for its fiscal third quarter, beating Wall Street estimates [1]. However, Zscaler forecast annual recurring revenue (ARR) growth of 16%-17% for fiscal 2027, below analyst expectations [1, 2]. The company also projected fourth-quarter revenue ranging from $875 million to $878 million, slightly under FactSet estimates of $878.6 million [1].
Zscaler expects fiscal 2026 ARR to reach $3.74 billion to $3.75 billion, representing about 24% year-over-year growth [1]. The company flagged an expected 200 basis point increase in capital expenditures as a percentage of revenue next year due to a memory chip shortage and rising costs [1].
During the quarter, Zscaler also experienced a sales leadership shakeup with the loss of two senior sales executives [1]. Over the past year, its stock has declined by roughly half, reflecting investor concerns amid a broader slowdown in AI-driven cybersecurity optimism [1, 2]. Evercore ISI downgraded Zscaler shares from outperform to in line and cut its price target, citing soft guidance and management changes, saying the stock may remain range-bound as the company navigates these issues [1].
Zscaler CEO Jay Chaudhry acknowledged the tougher outlook but expressed confidence in the sector’s potential, stating, "We are disciplined in our approach to really projecting, but see tremendous opportunity out there. Mythos is playing a big role in further fueling the fire because the need for cybersecurity has never been bigger" [1].
Zscaler’s next major milestone will be its fiscal fourth-quarter earnings release, which will provide additional clarity on how management plans to address growth and cost challenges highlighted in its guidance.
