Piper Sandler has revised its stance on Zscaler (ZS, Financial), changing its rating to Neutral from Overweight and adjusting the price target to $260 from the previous $235. Despite Zscaler surpassing its financial goals for the third fiscal quarter, analysts express caution about the potential for continued share price appreciation after the recent rise. The firm's analysis points out Zscaler's efforts to incorporate a recent acquisition, the uncertain outlook for the upcoming fiscal year, and the general unpredictability of Federal Reserve policies as factors warranting a more cautious investment approach. Consequently, investors are advised to wait for more favorable buying opportunities before increasing their stakes in the company.
Wall Street Analysts Forecast
Based on the one-year price targets offered by 41 analysts, the average target price for Zscaler Inc (ZS, Financial) is $244.99 with a high estimate of $340.00 and a low estimate of $195.00. The average target implies an downside of 2.44% from the current price of $251.11. More detailed estimate data can be found on the Zscaler Inc (ZS) Forecast page.
Based on the consensus recommendation from 47 brokerage firms, Zscaler Inc's (ZS, Financial) average brokerage recommendation is currently 2.0, indicating "Outperform" status. The rating scale ranges from 1 to 5, where 1 signifies Strong Buy, and 5 denotes Sell.
Based on GuruFocus estimates, the estimated GF Value for Zscaler Inc (ZS, Financial) in one year is $296.24, suggesting a upside of 17.97% from the current price of $251.11. GF Value is GuruFocus' estimate of the fair value that the stock should be traded at. It is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and the future estimates of the business' performance. More detailed data can be found on the Zscaler Inc (ZS) Summary page.
ZS Key Business Developments
Release Date: May 29, 2025
- Revenue: $678 million, up 23% year over year and 5% sequentially.
- Annual Recurring Revenue (ARR): Approximately $2.9 billion, representing 23% year-over-year growth.
- Remaining Performance Obligations (RPO): $4.978 billion, up 30% year over year.
- Calculated Billings: $785 million, up 25% year over year.
- Gross Margin: 80.3%, compared to 81.4% in the year-ago quarter.
- Operating Margin: Approximately 22%, comparable year over year.
- Free Cash Flow Margin: 18%, including data center CapEx at 11% of revenue.
- Cash and Cash Equivalents: Approximately $3 billion.
- Guidance for Q4 Revenue: $705 million to $707 million, reflecting approximately 19% year-over-year growth.
- Full-Year Fiscal 2025 Revenue Guidance: $2.659 billion to $2.661 billion, reflecting approximately 23% year-over-year growth.
- Full-Year Fiscal 2025 Free Cash Flow Margin Guidance: Approximately 25.5% to 26%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Zscaler Inc (ZS, Financial) achieved its best Q3 with TCV bookings of over $1 billion and remaining performance obligations nearing $5 billion.
- The company reported a strong year-over-year growth in new logo ACV of over 40% and total new ACV up double digits.
- Zscaler Inc (ZS) maintained a robust annual recurring revenue (ARR) of approximately $2.9 billion, marking the third consecutive quarter of 23% year-over-year growth.
- The company's free cash flow margin of 28% combined with a 24% revenue growth resulted in a Rule of 52 performance, surpassing the industry benchmark of Rule of 40.
- Zscaler Inc (ZS) continues to expand its platform with significant growth in Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations, with these categories approaching $1 billion in ARR.
Negative Points
- The macroeconomic environment remains challenging, with ongoing economic uncertainty causing customers to be cautious about IT spending.
- Zscaler Inc (ZS) faces increased scrutiny of large deals, which could impact the timing and closure of significant contracts.
- The company's total gross margin decreased to 80.3% from 81.4% in the year-ago quarter, influenced by the introduction of new products optimized for faster go-to-market rather than margins.
- There is potential variability in the dollar-based net retention rate due to the company's success in selling bigger bundles and faster upsells, which could affect future metrics.
- The acquisition of Red Canary, valued at $675 million, is expected to be largely neutral to FY26 consensus operating margin, indicating limited immediate financial benefit.
