Last Update 18 Apr 26

Fair value Decreased 24%

ZS: Future Returns Will Rely On Zero Trust AI Security Leadership

Analysts have trimmed the Zscaler fair value estimate from about $304 to $230 as they recalibrate price targets in line with lower peer multiples, slightly softer growth and margin assumptions, and ongoing sector wide multiple compression, even as many still highlight healthy core fundamentals and long term opportunities.

Analyst Commentary

Recent research on Zscaler reflects a mixed but generally constructive view, with many firms cutting price targets while maintaining positive ratings. The adjustments largely track sector wide multiple compression, modestly softer growth expectations and evolving views on competitive dynamics, rather than a wholesale reset of the business case.

Bullish Takeaways

Bullish analysts point to solid fiscal Q2 execution, with several highlighting upside on revenue and annual recurring revenue versus prior expectations, as well as sequential gross and operating margin expansion, as supportive of the long term thesis.
Multiple firms describe Zscaler's core business as healthy, with improving go to market execution and strong adoption of newer offerings, and some see the Red Canary acquisition and AI Security Suite as adding to the product and platform opportunity set.
Several bullish analysts emphasize Zscaler's positioning in Zero Trust and SASE, viewing the company as a large category leader and a potential beneficiary as customers modernize cloud network security and refresh legacy firewall deployments.
Despite lower price targets, many research desks retain Buy, Overweight or Outperform ratings, citing what they view as a compelling risk reward setup, a large market and raised longer term guidance for organic ARR and revenue as reasons to stay constructive.

Bearish Takeaways

Bearish analysts focus on sector wide software and security multiple compression, with many cuts explicitly tied to lower peer valuation benchmarks rather than to materially weaker Zscaler specific metrics.
Several reports flag decelerating or modest organic net new ARR growth and lighter than hoped for organic ARR in Q2, along with guidance that required more explanation, as factors weighing on sentiment and contributing to lower fair value estimates.
Some channel checks indicate softer demand trends versus prior quarters and suggest possible share shifts in distribution as Zscaler broadens its North America partner base, which bears view as adding uncertainty to near term execution.
Broader concerns around AI disruption in software, competitive fears in security and market contraction are cited by cautious analysts as overhangs that justify using more conservative revenue multiples and reduced price targets, even where operational performance is described as solid.

What's in the News

Zscaler announced a global expansion of its data sovereignty capabilities on the Zero Trust Exchange platform, including in-region SSL inspection, certified on-premises options, and region-specific support aimed at helping customers keep sensitive data within required jurisdictions while meeting regulatory needs such as GDPR, NIS2, and DoD IL5 (Key Developments, Product Related Announcements).
The company outlined architecture details that separate control, data, and logging planes across more than 160 data centers, along with flexible logging and customer-controlled encryption keys via hardware security modules, with independent assessments cited as validating its approach to data protection and service availability (Key Developments, Product Related Announcements).
Zscaler raised full-year fiscal 2026 guidance and now expects revenue of approximately US$3.309b to US$3.322b and annual recurring revenue of US$3.730b to US$3.745b. Both ranges were described as implying 24% growth, compared with prior revenue guidance of US$3.282b to US$3.301b and ARR guidance of US$3.698b to US$3.718b that were tied to 23% growth (Key Developments, Corporate Guidance Raised).
For the third quarter of fiscal 2026, Zscaler issued revenue guidance of US$834m to US$836m, with the range associated with 23% growth, giving investors a data point on near-term expectations (Key Developments, Corporate Guidance New/Confirmed).
Recent client and technology partnership activity includes a new AI and cyber threat research center in India launched with Bharti Airtel, a technology alliance with P0 Security focused on extending Zero Trust access and authorization controls to modern production and AI-heavy environments, and an integration with Versa Secure SD WAN that aims to automate branch-to-cloud connectivity with Zscaler Internet Access (Key Developments, Client Announcements and Strategic Alliances).

Valuation Changes

Fair Value: trimmed from $304.23 to $230.45, a reduction of roughly 24% in the modelled estimate.
Discount Rate: raised slightly from 8.57% to 8.68%, reflecting a modestly higher required return in the updated assumptions.
Revenue Growth: eased from 20.28% to 19.91%, indicating a small reduction in modelled growth expectations.
Net Profit Margin: reduced from 3.94% to 2.96%, pointing to lower anticipated profitability in the forecast period.
Future P/E: adjusted from 348.33x to 342.40x, a small reduction in the multiple applied to projected earnings.

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Key Takeaways

Growing adoption of advanced cloud security solutions and platform innovation is boosting upsell opportunities, long-term customer value, and expanding Zscaler's market share.
Rapid response to AI-driven threats and shifting industry trends supports sustained revenue growth, higher margins, and increasing operating efficiency through automation and scale.
Growing competition, talent shortages, and aggressive expansion are pressuring Zscaler's profitability, margins, and long-term market share in an evolving cybersecurity landscape.

Catalysts

About Zscaler

Operates as a cloud security company worldwide.What are the underlying business or industry changes driving this perspective?

Accelerating customer adoption of Zero Trust Everywhere and Data Security Everywhere solutions, particularly among Global 2000 and Fortune 500 firms, is fueling large upsell deals and higher ARR per customer, which should drive sustained double-digit revenue growth and improve net retention rates.
Explosive growth in AI/ML traffic and emerging threats is creating new security challenges that Zscaler is rapidly addressing with differentiated AI security and agentic operations products, positioning the company to capture a rising share of incremental cyber budgets and expand recurring ARR over the long term.
The transition away from legacy security appliances (firewalls, SD-WAN) in favor of unified cloud-delivered security architectures is gaining momentum across key verticals like retail and manufacturing, supporting a multi-year replacement cycle that will boost platform adoption, revenue, and margins.
Strategic platform innovation and programs like Z-Flex are driving broader product adoption within existing accounts and enabling larger, multi-year deals, increasing total contract value and supporting higher future operating margins through scale.
Ongoing investments in go-to-market and operational scale, combined with improving automation and integration from recent acquisitions (e.g., Red Canary), are expected to unlock further operating leverage, resulting in sustained improvement of operating and free cash flow margins.

Zscaler Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Zscaler's revenue will grow by 19.9% annually over the next 3 years.
Analysts assume that profit margins will increase from -2.3% today to 3.0% in 3 years time.
Analysts expect earnings to reach $152.9 million (and earnings per share of $1.42) by about April 2029, up from -$67.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $398.1 million in earnings, and the most bearish expecting $-282.3 million.
In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 342.6x on those 2029 earnings, up from -320.2x today. This future PE is greater than the current PE for the US Software industry at 29.7x.
Analysts expect the number of shares outstanding to grow by 3.27% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

Increasing integration of security capabilities by public cloud providers (like AWS, Azure, Google Cloud) could erode Zscaler's competitive advantage and reduce its total addressable market, which would pressure both revenue growth and future earnings.
Intensifying competition from established cybersecurity vendors and cloud-native platform companies may drive pricing pressure, force higher sales & marketing spend, and compress Zscaler's gross and operating margins over the long term.
The rapid pace of new product launches focused on growth over profitability-such as in AI security and Zero Trust Branch-may sustain lower gross margins for longer periods, delaying improvements in net margins and affecting earnings quality.
The ongoing global cybersecurity talent shortage and high reliance on stock-based compensation to attract and retain specialized employees could significantly raise operating costs and dilute future earnings per share and share price appreciation.
Market consolidation through M&A or expansion of bundled security offerings by larger players could limit Zscaler's stand-alone market share, weaken pricing power, and ultimately put long-term revenue and net retention rates at risk.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $230.45 for Zscaler based on their expectations of its future earnings growth, profit margins and other risk factors.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $335.0, and the most bearish reporting a price target of just $140.0.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $5.2 billion, earnings will come to $152.9 million, and it would be trading on a PE ratio of 342.6x, assuming you use a discount rate of 8.7%.
Given the current share price of $134.68, the analyst price target of $230.45 is 41.6% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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