TLDR
- Zscaler delivered Q2 FY2026 adjusted EPS of $1.01 on revenue of $816M, exceeding analyst projections
- Shares declined 9% in pre-market hours Friday following the earnings announcement
- Annual EPS outlook of $3.99–$4.02 surpassed the Street’s $3.92 expectation
- Year-to-date, the stock has declined 26% amid ongoing software sector valuation concerns
- CFO Kevin Rubin highlighted the firm’s impressive “Rule-of-62” performance metric
Zscaler $ZS delivered impressive fiscal Q2 results, yet investors responded by sending shares lower. This reaction encapsulates the current state of software equities.
The cloud security provider announced adjusted earnings of $1.01 per share, surpassing analyst expectations of $0.89 by a significant $0.12 margin. Total revenue reached $815.8 million, marking a 26% year-over-year increase and beating the $798 million Street forecast.
Yet these strong results couldn’t prevent a roughly 9% decline in pre-market trading Friday morning.
The week proved turbulent for the stock. Shares plummeted 10% Monday as artificial intelligence concerns rattled technology markets. A strong recovery followed with a 17% gain across the subsequent three trading days, only to reverse course again after Thursday’s earnings release.
Looking ahead to Q3 FY2026, Zscaler projected adjusted EPS between $1.00 and $1.01, exceeding the $0.95 analyst consensus. The company expects revenue in the range of $834 million to $836 million, marginally above the $831.9 million estimate.
Management lifted full-year FY2026 adjusted EPS guidance to a range of $3.99–$4.02, comfortably ahead of the prior $3.82 consensus forecast. Annual revenue projections now stand at $3.309 billion to $3.322 billion, modestly surpassing the $3.3 billion analyst estimate.
CEO Jay Chaudhry positioned the company as essential infrastructure for AI adoption, emphasizing that enterprises deploying AI solutions are leveraging Zscaler’s platform to protect AI-powered and agentic systems.
Chaudhry described Zscaler as the “cybersecurity platform for the AI age,” highlighting how its Zero Trust architecture is uniquely suited to address the velocity and complexity of AI and agentic workflows.
Rule-of-62
CFO Kevin Rubin drew attention to an exceptional efficiency indicator. He revealed Zscaler is achieving a “Rule-of-62” through the fiscal year to date.
This metric combines revenue growth rate with operating margin. While the Rule-of-40 represents the industry standard for sustainable software businesses, Zscaler’s performance significantly exceeds this threshold.
A Challenging Year for ZS
Prior to the earnings release, ZS had already surrendered 26% of its value in 2026. The latest post-earnings selloff compounds the difficulties for a stock that has struggled to gain momentum throughout the year.
This week’s price action illustrates the current dilemma facing software investors. A double-digit drop, followed by a robust rally, then another sharp retreat despite solid results — the market appears indecisive about appropriate valuation levels for these companies.
The Q3 forecast calling for $834–$836 million in revenue and EPS of $1.00–$1.01 still exceeds consensus analyst projections.
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