Last Update 22 Jan 26

Fair value Decreased 3.01%

ZS: Future Returns Will Rely On Expanding Zero Trust And AI Security Demand

Analysts have nudged their implied price expectations for Zscaler lower, trimming the fair value estimate by about US$10 to US$318.35. Recent cuts and modest increases in price targets across firms reflect more cautious views on security spending, peer multiples and competitive trends, even as research notes still point to solid ARR performance and interest in emerging products.

Analyst Commentary

Recent research on Zscaler shows a mix of enthusiasm around execution and products, balanced by more cautious views on security budgets, competition and valuation. Price targets have moved in both directions, with most firms keeping positive ratings while trimming or fine tuning their fair value assumptions.

Bullish Takeaways

Several bullish analysts highlight Q1 as a solid print, with comments describing it as a good quarter against high expectations and a result they would normally expect to see met with a positive reaction.
Annual recurring revenue, or ARR, is a key focus, with one firm pointing to 26% y/y growth and US$3.2b in ARR as well as organic quarter over quarter net new ARR above US$90m, which they see as a strong step up versus the prior year period.
JPMorgan emphasizes strength in emerging products, calling out Zero Trust Everywhere, AI Security and Data Security as seeing healthy sequential ARR growth, which they view as a support for growth and a reason to lift their price target to US$354.
Some bullish analysts see risk reward skewing positive over the medium term, citing Zscaler as a potential growth compounder and lifting targets into the mid US$300s, even after factoring in high expectations around AI related demand.

Bearish Takeaways

Bearish analysts trimming price targets into the US$300 range point to modestly lower peer multiples, signaling that sector wide valuation resets are an important input into their fair value work on Zscaler.
Incremental caution on security budgets and competitive concerns feature in several notes, with some firms referencing survey work with chief information security officers and channel checks that picked up seasonal slowness in fiscal Q1.
While ARR metrics draw positive attention, some analysts flag slightly underwhelming bottom line results and limited detail on the Red Canary contribution, which in their view creates a need for more concrete data with upcoming quarterly reports.
A few firms also mention the stock having already outperformed peers year to date, which, combined with high expectations, leads them to frame the risk of a tactical pullback even if they maintain positive ratings on the name.

What's in the News

Peraton is partnering with Zscaler to combine Peraton's hybrid multicloud capabilities with Zscaler's Zero Trust Exchange platform, aiming to support network transformation, Zero Trust adoption, and digital modernization for large enterprise and government environments. The partnership is intended to help reduce IT complexity and the overall attack surface.
Orca Security expanded its partnership with Zscaler by integrating Zscaler Private Access with Orca's AI powered cloud risk intelligence. The integration is designed to cut alert noise, connect access context to workload risk, and support a stronger Zero Trust posture across private apps and cloud infrastructure.
TPx selected Zscaler as the Security Service Edge technology platform for the next phase of its SASE strategy. The combination of Zscaler's cloud delivered security with TPx's managed SD WAN is intended to support a unified, cloud first secure networking framework, with a managed SASE solution planned for early 2026.
Zscaler issued earnings guidance for fiscal 2026, indicating expected Q2 revenue of US$797m to US$799m, full year ARR of US$3.698b to US$3.718b, and full year revenue of about US$3.282b to US$3.301b.
Zscaler joined Microsoft's Entra Agent ID partner ecosystem as an early adoption partner, working across Agent Registry, Agent ID, and Agent Directory to help enterprises securely onboard and govern AI agents. Zscaler also plans to treat Entra Agent ID as a first class identity within the Zscaler platform.

Valuation Changes

The fair value estimate has been reduced modestly, moving from US$328.22 to about US$318.35 per share.
The discount rate is essentially unchanged, shifting slightly from 8.57% to about 8.58%.
The revenue growth assumption is broadly stable, edging from 20.27% to about 20.28%.
The net profit margin assumption shows a small uplift, moving from 4.02% to about 4.03%.
The future P/E multiple has been trimmed, moving from about 379.91x to about 357.03x earnings.

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 20.5% annually over the next 3 years.
Analysts assume that profit margins will increase from -1.6% today to 3.0% in 3 years time.
Analysts expect earnings to reach $139.8 million (and earnings per share of $0.81) by about September 2028, up from $-41.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $357.1 million in earnings, and the most bearish expecting $-44.5 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 498.3x on those 2028 earnings, up from -1059.6x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to grow by 2.63% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

Zscaler Future Earnings Per Share Growth

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 $324.659 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 $385.0, and the most bearish reporting a price target of just $251.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.7 billion, earnings will come to $139.8 million, and it would be trading on a PE ratio of 498.3x, assuming you use a discount rate of 8.5%.
Given the current share price of $282.29, the analyst price target of $324.66 is 13.1% 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.

Zero Trust And AI Security Will Unlock Future Markets