Zscaler beats Q4 estimates, guides higher on AI security demand

For the quarter ended July 31, adjusted earnings came to $1.19 per share, beating the $1.09 expected by analysts polled by LSEG. Revenue was $898.2 million, above the $877 million estimate and 25% higher than $719 million a year earlier. The net loss narrowed to $3.37 million, or 2 cents per share, from $17.58 million, or 11 cents per share, in the year-ago quarter.

Annual recurring revenue ended the year at $3.771 billion, up 25% and ahead of the $3.75 billion StreetAccount estimate; $246 million of that was added in the fourth quarter. The company completed its $675 million purchase of managed detection and response provider Red Canary on Aug. 1, 2025, the opening day of its fiscal 2026 year, and that business contributed $141 million of ARR. Excluding Red Canary, ARR growth was 20%. Deferred revenue rose 19% to $2.926 billion.

Adjusted operating income was $218.4 million, or 24% of revenue, which the company said was a record margin, up from 22% a year earlier. Free cash flow was $60.8 million, or 7% of revenue, down from $171.9 million, or 24%, because capital expenditures and internal-use software costs rose to $218.5 million from $78.7 million.

Chief Executive Jay Chaudhry said the company's Zero Trust cloud security architecture and technology drove the beat. He described the recently launched platform for AI agent iteration as a larger long-term ARR opportunity and said he is "very bullish" on it. "It's a longer-term opportunity, but I think it's a fantastic opportunity with significant barriers to entry," Chaudhry told CNBC. He added that the tool should accelerate into 2028 and 2029. Over the past year, Zscaler booked $100 million in AI security-related deals, with sequential quarterly growth of 50%.

Guidance also exceeded consensus. For the first quarter of fiscal 2027, Zscaler expects revenue of $935 million to $939 million and adjusted EPS of $1.15 to $1.16, versus estimates of approximately $928 million and $1.08. For the full fiscal year, it expects adjusted EPS of $4.86 to $4.90 and revenue of $3.908 billion to $3.938 billion, compared with analyst projections of $4.60 and $3.90 billion. The company projected annual recurring revenue of $4.396 billion to $4.426 billion.

Cybersecurity companies have rallied this year on demand for tools to secure AI agents and counter agent-led attacks, but Zscaler shares had fallen 20% in 2026 before the report. Last quarter the stock posted its worst day after management took a "prudent approach" to guidance following two sales leader departures. Chaudhry disputed the market's view, saying Zscaler's capabilities are unique and will become more visible as AI adoption grows. Chief Financial Officer Kevin Rubin said growth is "broadening beyond users," helped by products not sold on a per-seat basis and the Z-Flex buying program, and the company set a record for large deals in the quarter.