Quick Summary
- Zscaler delivered Q2 FY2026 results with adjusted EPS of $1.01 and $816M in revenue, surpassing analyst projections
- Shares declined 9% in Friday’s pre-market session following the earnings announcement
- Annual EPS forecast of $3.99–$4.02 exceeded Wall Street’s $3.92 estimate
- Year-to-date performance shows a 26% decline, mirroring broader software sector uncertainty
- According to CFO Kevin Rubin, the company maintains a “Rule-of-62” metric, significantly exceeding the standard Rule-of-40 threshold
Zscaler $ZS delivered impressive fiscal Q2 results, only to see its shares tumble. This paradox captures the current sentiment in software equities perfectly.
The cloud security provider announced adjusted earnings of $1.01 per share, surpassing analyst expectations of $0.89 by a significant $0.12 margin. Quarterly revenue reached $815.8 million, representing 26% year-over-year growth and beating the Street’s $798 million projection.
Yet shares plummeted approximately 9% during Friday’s pre-market session.
The week proved particularly volatile for the stock. Shares dropped 10% Monday amid AI-driven market turmoil. The following three trading days saw a 17% recovery before Thursday’s earnings release triggered another sharp retreat.
Looking ahead to Q3 FY2026, Zscaler projected adjusted EPS between $1.00 and $1.01, exceeding the $0.95 consensus forecast. The company anticipates revenue in the $834 million to $836 million range, marginally above Street estimates of $831.9 million.
Management elevated full-year FY2026 adjusted EPS guidance to $3.99–$4.02, surpassing the previous Street consensus of $3.82. Annual revenue projections now stand at $3.309 billion to $3.322 billion, modestly above the $3.3 billion estimate.
CEO Jay Chaudhry positioned the company’s offerings within the context of artificial intelligence transformation, highlighting how enterprises embracing AI are leveraging Zscaler’s platform for securing AI-powered and agentic operations.
Chaudhry described Zscaler as the “cybersecurity platform for the AI age,” emphasizing how its Zero Trust architecture is optimally positioned to support the velocity and magnitude of AI and agentic workflows.
Exceptional Efficiency Metrics
CFO Kevin Rubin highlighted an impressive operational efficiency figure. He noted Zscaler is achieving a “Rule-of-62” metric on a fiscal year-to-date basis.
This calculation blends revenue growth with profit margins. While the Rule-of-40 represents the industry standard for robust software companies, Zscaler’s performance substantially exceeds this benchmark.
Challenging 2026 Performance
Prior to the earnings release, ZS had already declined 26% during 2026. The post-earnings selloff compounds the difficulties facing a stock that has struggled for momentum throughout the year.
This week’s dramatic price swings illustrate the current state of software investing. A 10% plunge, followed by a 17% rally, then another steep drop despite solid fundamentals — the market remains undecided about appropriate valuations for this sector.
The Q3 forecast calling for $834–$836 million in revenue and EPS of $1.00–$1.01 continues to exceed analyst expectations.
