Key Takeaways
- Zscaler delivered adjusted EPS of $1.01 alongside $816M in Q2 FY2026 revenue, surpassing analyst expectations
- Shares declined 9% in pre-market hours Friday following the earnings release
- Full-year EPS guidance increased to $3.99–$4.02, exceeding the $3.92 analyst consensus
- Year-to-date performance shows shares down 26%, mirroring wider software sector valuation challenges
- CFO Kevin Rubin highlighted the company’s “Rule-of-62” performance, significantly exceeding the Rule-of-40 standard
Zscaler $ZS delivered impressive fiscal second-quarter results, yet investors sent shares lower. This pattern exemplifies current software market sentiment.
The cybersecurity firm reported adjusted earnings of $1.01 per share, surpassing the Wall Street projection of $0.89 by $0.12. Revenue reached $815.8 million, representing 26% year-over-year growth and exceeding the $798 million analyst forecast.
These strong results didn’t prevent shares from sliding approximately 9% during pre-market trading Friday.
The week proved turbulent for the stock. Monday brought a 10% decline as AI-related concerns swept through the broader market. The following three sessions saw a 17% recovery before Thursday’s earnings announcement triggered another selloff.
For Q3 FY2026, Zscaler provided guidance calling for adjusted EPS between $1.00 and $1.01, surpassing the $0.95 analyst consensus. Revenue projections range from $834 million to $836 million, modestly exceeding the $831.9 million estimate.
Full-year FY2026 projections increased to adjusted EPS of $3.99–$4.02, above the previous consensus of $3.82. Annual revenue forecasts now stand at $3.309 billion to $3.322 billion, marginally higher than the $3.3 billion estimate.
CEO Jay Chaudhry positioned the company within the AI revolution, noting organizations embracing AI adoption are leveraging Zscaler’s platform to protect AI-powered and agentic workflows.
Chaudhry described Zscaler as the “cybersecurity platform for the AI age,” emphasizing how its Zero Trust platform addresses the velocity and complexity of AI and agentic workflows.
Exceptional Efficiency Metrics
CFO Kevin Rubin highlighted a remarkable efficiency indicator. He noted Zscaler is achieving a “Rule-of-62” on a fiscal year-to-date basis.
This metric blends revenue growth with profit margin. The Rule-of-40 represents the traditional benchmark for successful software companies — Zscaler’s performance significantly exceeds this threshold.
Challenging Year-to-Date Performance
Prior to the earnings announcement, ZS had already declined 26% in 2026. The post-earnings drop compounds the pressure on shares that have struggled throughout the year.
This week’s volatility captures the current state of software investor sentiment. A 10% plunge, followed by a 17% surge, then another sharp retreat following solid results — the market remains indecisive about appropriate valuations for these companies.
The Q3 forecast calling for $834–$836 million in revenue and EPS of $1.00–$1.01 continues to exceed analyst projections.
