ZSBy Calypso Research7 min read

Zscaler (ZS) Q4 2025 Earnings Analysis

Zscaler's Earnings Take a Dive as Zero Trust Wavers at 12.2%

Key Takeaways

Zscaler (ZS) reported Q4 2025 earnings with revenue of $816M, representing a +25.9% year-over-year change. The stock moved -12.2% on earnings day.

The bull case: Zscaler’s differentiated Zero Trust architecture, accelerating AI/agentic security demand, and expanding Zero Trust Everywhere plus Z-Flex motions drive durable double-digit ARR growth and rising large transformational deal volume.

The bear case: Intensifying SASE and SD-WAN competition, MDR-related churn from Red Canary, and dependence on complex multi-module and AI narratives could cap organic net new ARR acceleration and pressure Zscaler’s premium growth and valuation multiple.

Financial Highlights

  • Revenue: $816M (+25.9% YoY)
  • Gross Profit: $624M (76.6% margin, -0.5% YoY)
  • Operating Income: $-52M (-6.3% margin, -0.6% YoY)
  • Net Income: $-34M
  • TTM Revenue: $3.0B

Stock Performance

  • Earnings Day Move: -12.2%
  • Year-to-Date: -33.4%
  • 1-Year Return: -25.1%
  • vs. S&P 500 (since earnings): -34.3%
  • vs. Nasdaq (since earnings): -31.8%

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What Management Said

Here are the key debates and direct quotes from Zscaler's Q4 2025 earnings call:

Magnitude and Durability of AI / Agentic Security Opportunity (Traffic, Tokens, and Budget Attach)

Sentiment: Positive

"Our AI Security solutions, which are starting small but growing pretty rapidly, are all non-user-based, rather they are token-based... we are pleased to say that 1/4 of our new business came from metered usage, and we expect it to grow over time, especially with AI agents, because we believe that there will be billions of AI agents." — Jagtar Chaudhry
"The more agents, the more agentic traffic, the more value we deliver, and the better revenue opportunity for us... we look at it as probably the biggest upside for growth of Zscaler business." — Jagtar Chaudhry

Core ZIA/ZPA Health vs. New Growth Pillars (Zero Trust Everywhere, Data Security, and Mix Shift)

Sentiment: Positive

"This quarter, our Zero Trust Internet Access, or ZIA, and Zero Trust Private Access, or ZPA, ARR remained healthy and grew in the mid-teens... it just reiterates the stability in the underlying business and really gives a sense for what's driving kind of the core of the business." — Kevin Rubin
"One interesting stat on ZIA is that customers on average are tripling their initial purchase in 4 years. That's pretty remarkable." — Jagtar Chaudhry

Z-Flex Structure, Ramps, and Visibility vs. Complexity in ARR and RPO

Sentiment: Positive

"In Q2, Z-Flex generated more than $290 million in TCV, up over 65% quarter-over-quarter... Since launching a year ago, we have delivered approximately $650 million in TCV at an average 4-year term, underscoring customers' long-term commitment to Zscaler." — Kevin Rubin
"Fundamentally, 2 deals, if it's a Z-Flex or if it's a non-Z-Flex, so long as they're similar structure, there's no difference in how that shows up in ARR... The average Z-Flex deal is typically an 8-figure TCV commitment... and right now, the average is about 4 [years]." — Kevin Rubin

Red Canary Acquisition: Elevated Churn vs. Upwardly Revised Contribution

Sentiment: Mixed

"Post acquisition, Red Canary's churn has been elevated. We'll be providing Red Canary ARR in Q3 and Q4... As a reminder, Red Canary was a technology and talent acquisition, and it is a core feature of the Agentic SOC that we are putting together and combining." — Kevin Rubin
"For Red Canary, we expect ARR of approximately $130 million in fiscal '26, up from our prior guidance of $95 million... We expect Red Canary revenue of approximately $125 million in fiscal '26, up from our prior guidance of $90 million." — Kevin Rubin

Competitive Landscape: SASE vs. Zero Trust and Win Rates

Sentiment: Positive

"We haven't seen much change in the competitive dynamics over the past few quarters... there's a fair amount of noise the market creates out there, SASE this, SASE that... But what we are seeing in the market is our customers care about Zero Trust. And as we engage and explain Zero Trust, we almost always win." — Jagtar Chaudhry
"SASE is not equal to Zero Trust, and Zero Trust is what eliminates lateral movement... Our brand has grown. Most of the large enterprises like us, they know us. And I think the future is great for us." — Jagtar Chaudhry

Bull Case

Zscaler’s differentiated Zero Trust architecture, accelerating AI/agentic security demand, and expanding Zero Trust Everywhere plus Z-Flex motions drive durable double-digit ARR growth and rising large transformational deal volume.

Bear Case

Intensifying SASE and SD-WAN competition, MDR-related churn from Red Canary, and dependence on complex multi-module and AI narratives could cap organic net new ARR acceleration and pressure Zscaler’s premium growth and valuation multiple.

Looking Ahead

With revenue growing +25.9% year-over-year, the key question is whether Zscaler can sustain this growth trajectory, particularly around magnitude and Durability of AI / Agentic Security Opportunity (Traffic, Tokens, and Budget Attach). With operating margins at -6.3%, margin trends will remain a focal point. The market's negative earnings-day reaction signals that investors need to see stronger execution, and the next earnings report will be a key catalyst for the stock.

Frequently Asked Questions

What was Zscaler's revenue in Q4 2025?

Zscaler reported Q4 2025 revenue of $816M, representing a +25.9% year-over-year change.

Did Zscaler beat earnings expectations in Q4 2025?

The stock declined -12.2% on earnings day, suggesting the results fell short of market expectations. The current bull case centers on: Zscaler’s differentiated Zero Trust architecture, accelerating AI/agentic security demand, and expanding Zero Trust Everywhere plus Z-Flex motions drive durable double-digit ARR growth and rising large transformational deal volume.

What is the bull case for ZS stock?

The bull case for ZS centers on: Zscaler’s differentiated Zero Trust architecture, accelerating AI/agentic security demand, and expanding Zero Trust Everywhere plus Z-Flex motions drive durable double-digit ARR growth and rising large transformational deal volume.

What is the bear case for ZS stock?

The bear case for ZS centers on: Intensifying SASE and SD-WAN competition, MDR-related churn from Red Canary, and dependence on complex multi-module and AI narratives could cap organic net new ARR acceleration and pressure Zscaler’s premium growth and valuation multiple.

How has ZS stock performed since its Q4 2025 earnings?

ZS moved -12.2% on the day of its Q4 2025 earnings report, underperforming the S&P 500 by +34.3% since earnings. Year-to-date, the stock has returned -33.4%.

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