Zscaler beat earnings estimates but saw its stock plunge 25% as weak guidance overshadowed solid quarterly results. The cybersecurity firm reported fiscal Q3 adjusted EPS of $1.08, above expectations, with 25% year-over-year revenue growth. However, investors focused on the forward outlook.
The company projected Q4 revenue between $875 million and $878 million, below consensus estimates of $878.6 million to $950 million. While Zscaler raised its full-year annual recurring revenue guidance to about 24% growth, it also lowered free cash flow margin expectations due to increased capital expenditure, signaling margin compression.
The selloff rippled through the cybersecurity sector, with peer stocks declining as traders repriced risk. Departures in Zscaler's sales leadership raised concerns about enterprise deal closures, contributing to the weakened outlook. The stock is now down about 40% year-to-date.
Zscaler is pivoting toward AI-related acquisitions and data sovereignty enhancements, driving the higher capex that pressures margins. Investors now watch for stabilization in sales leadership and whether margin pressure persists as revenue growth stabilizes.