Zscaler Inc. (NASDAQ:ZS) reported fiscal first quarter 2026 results that exceeded Wall Street estimates, but its shares fell amid elevated investor expectations.
the quarter ending October 31, the company posted adjusted earnings per share (EPS) of $0.96, surpassing the analyst consensus of $0.86 and representing a 23.6% increase from the prior year.
Revenue rose 26% year-over-year to $788.1 million, slightly above the consensus estimate of $773 million.
The company also reported annual recurring revenue of $3.204 billion, up 26% from a year earlier, and deferred revenue of $2.351 billion, a 32% increase.
During the quarter, Zscaler completed acquisitions of Red Canary and SPLXAI for a combined $692 million, and its cash, cash equivalents, and short-term investments stood at $3.321 billion at the end of October.
“Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform,” Zscaler CEO Jay Chaudhry said in a statement.
“With over $3.2 billion in Annual Recurring Revenue, growing over 25% year-over-year, and Rule-of-78 performance, I'm very pleased to share that an increasing number of customers are relying on our platform for better security, lower operational costs and reduced IT complexity.”
Looking ahead, Zscaler raised its fiscal 2026 guidance, projecting revenue between $3.282 billion and $3.301 billion and adjusted EPS of $3.78 to $3.82.
For the second quarter, the company expects revenue of $797 million to $799 million and adjusted EPS of $0.89 to $0.90.
Despite the quarterly beat and upbeat guidance, Zscaler’s stock fell about 12% to $255 as investors weighed ongoing challenges, including a net loss of $11.6 million and a modest contraction in its adjusted gross margin.
Wedbush analysts maintained an ‘Outperform’ rating on Zscaler with a 12-month price target of $350, noting the company delivered a “robust quarter and healthy guidance” driven by strong demand for its Cloud and AI security solutions.
The firm highlighted that Zscaler saw 20% year-over-year growth in customers with $1 million or more in annual recurring revenue and 19% growth among customers with $100,000 or more.
Wedbush also pointed to strong performance in new product lines, including AI Security, Data Security, and Zero Trust Anywhere, with total RPO growing 35% year-over-year and billings up 30% to $671.4 million, exceeding Street estimates.
Z-Flex bookings, launched less than three quarters ago, were up 70% quarter-over-quarter and are expected to be a meaningful growth driver for fiscal 2026.
Wedbush wrote that the company remains well-positioned in the continued shift to Zero Trust and AI security for enterprises and would be a buyer on any weakness in shares.
“Overall, we continue to view ZS as a premier name to own in the cyber security industry as it remains very well-positioned in the continued shift to Zero Trust/AI security for enterprises,” the analysts concluded.