Zscaler (ZS) Stock: Drops 9% After Hours Despite Beating Q1 Earnings and Raising Outlook

TLDR

Table of Contents

Zscaler beat Q1 fiscal 2026 estimates with $0.96 EPS versus $0.86 expected and revenue of $788.1 million versus $773.26 million forecast
Annual Recurring Revenue climbed 26% to $3.2 billion while deferred revenue surged 32% to $2.35 billion
Company raised full-year revenue guidance to $3.28-$3.30 billion and EPS forecast to $3.78-$3.82
Shares fell 9% in extended trading to $266.90 despite strong results
Stock has climbed over 60% year-to-date before Monday’s after-hours drop

Zscaler reported first-quarter fiscal 2026 results Monday that exceeded Wall Street expectations across the board. Yet shares tumbled 9% in after-hours trading.

Zscaler, Inc., ZS

The cloud security company posted adjusted earnings of $0.96 per share, crushing analyst estimates of $0.86. Revenue grew 26% year-over-year to $788.1 million, surpassing the $773.26 million consensus.

The negative market reaction suggests investors anticipated even stronger performance. The stock has already gained over 60% year-to-date, potentially creating elevated expectations.

$ZS (Zscaler) #earnings are out: pic.twitter.com/qeYoFMFbg0

— The Earnings Correspondent (@earnings_guy) November 25, 2025

Annual Recurring Revenue reached $3.2 billion, growing 26% from the prior year. Deferred revenue jumped 32% to $2.35 billion, accelerating from 30% growth in the previous quarter.

CEO Jay Chaudhry highlighted platform demand in the earnings release. “Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform,” he said.

Strong Guidance Across Key Metrics

The company provided upbeat second-quarter guidance. Revenue is expected between $797 million and $799 million, above the $796.1 million consensus estimate.

Zscaler projects Q2 adjusted earnings of $0.89 to $0.90 per share, matching analyst expectations. Full-year fiscal 2026 guidance received an upgrade across multiple metrics.

The company now expects full-year revenue of $3.28 billion to $3.30 billion. Adjusted EPS guidance for the year stands at $3.78 to $3.82, both figures topping consensus forecasts.

Full-year ARR guidance increased to a range of $3.698 billion to $3.718 billion. Non-GAAP income from operations hit $171.9 million, representing 22% of revenue compared to 21% in the prior-year quarter.

Tax Rate Reduction and Platform Expansion

Zscaler announced a reduced adjusted tax rate of 21%, down from 23% previously. The change aligns with the enactment of the “One Big Beautiful Bill Act” and became effective in the first quarter.

Chaudhry discussed the company’s recent acquisition strategy. “By integrating the recently acquired SPLX technology with our comprehensive AI Security offerings, we are expanding our best-in-class AI Security solutions,” he stated.

The CEO noted that over $3.2 billion in Annual Recurring Revenue reflects growing customer adoption. Companies increasingly rely on the platform for enhanced security, reduced operational costs and simplified IT infrastructure.

Shares dropped to $266.90 in extended trading following the earnings announcement. The stock’s strong year-to-date performance may have set a high bar for quarterly results.

Retail sentiment improved after the earnings print, according to market tracking data. The company’s Zero Trust and AI security solutions continue attracting enterprise customers.

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