TLDR
- Zscaler posted fiscal Q2 2026 adjusted EPS of $1.01 with revenue reaching $816M, beating analyst forecasts
- Stock tumbled 9% during Friday’s pre-market trading despite the positive earnings report
- Full-year EPS guidance upgraded to $3.99–$4.02, outpacing the $3.92 Street estimate
- Year-to-date losses stand at 26%, reflecting widespread software sector valuation pressures
- Business efficiency demonstrates “Rule-of-62” performance, far exceeding the industry’s Rule-of-40 benchmark
Zscaler $ZS posted stellar second-quarter financials, but the market’s response was anything but celebratory. The stock’s decline highlights the challenging environment confronting software companies today.
The cybersecurity specialist announced adjusted earnings of $1.01 per share, outperforming Wall Street’s $0.89 estimate by a substantial $0.12 margin. Revenue climbed to $815.8 million, marking 26% year-over-year expansion and topping the $798 million consensus forecast.
Despite these impressive numbers, the stock retreated roughly 9% in pre-market trading on Friday.
ZS shareholders experienced significant whipsaw action throughout the week. A 10% drop on Monday, driven by AI-related market volatility, was followed by a substantial 17% rebound over the next three sessions. However, Thursday’s earnings disclosure triggered fresh selling pressure.
For the third quarter of fiscal 2026, Zscaler forecasts adjusted EPS ranging from $1.00 to $1.01, surpassing the Street’s $0.95 expectation. Revenue guidance of $834 million to $836 million also edges past analyst projections of $831.9 million.
The company increased its fiscal 2026 full-year outlook, now expecting adjusted EPS between $3.99 and $4.02 compared to the prior $3.82 consensus. Revenue projections were raised to $3.309 billion through $3.322 billion, marginally above the $3.3 billion Street estimate.
CEO Jay Chaudhry highlighted the company’s strategic focus on artificial intelligence capabilities, explaining that organizations rapidly adopting AI technologies are turning to Zscaler’s platform to secure AI-driven and autonomous systems.
Chaudhry described Zscaler as the “cybersecurity platform for the AI age,” stressing that the company’s Zero Trust framework is perfectly positioned to handle the speed and scale of AI and autonomous agent workflows.
Rule-of-62
CFO Kevin Rubin showcased a remarkable efficiency benchmark. Zscaler currently achieves a “Rule-of-62” metric on a fiscal year-to-date basis.
This measurement combines revenue growth percentage with profit margin performance. The Rule-of-40 serves as the standard benchmark for well-performing software enterprises, making Zscaler’s achievement notably superior.
A Rough Year for ZS
Before Thursday’s earnings announcement, ZS shares had already declined 26% during 2026. The earnings-related selloff adds to the difficulties facing a stock that has encountered headwinds all year.
This week’s trading pattern exemplifies the prevailing sentiment among software sector investors. A 10% plunge, followed by a 17% rally, then another steep decline despite solid fundamentals—market participants continue grappling with appropriate valuation levels for these businesses.
The third-quarter outlook projecting $834–$836 million in revenue with EPS of $1.00–$1.01 maintains the company’s trend of exceeding Wall Street expectations.
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