Zscaler shares tumble after weak fiscal 2027 outlook clouds quarterly beat

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Zscaler shares tumble after outlook

Highlights

Zscaler projects annual recurring revenue growth of 16% to 17% for fiscal 2027 and quarterly revenue guidance of $875 million to $878 million, both below analyst estimates.
Zscaler's capital expenditures as a share of revenue will rise by 200 basis points in fiscal 2027 due to memory constraints and increased costs, amid executive turnover.
Zscaler beat Q3 expectations with adjusted earnings of $1.08 per share on $850 million revenue but shares fell, Evercore ISI downgraded the stock citing weak outlook and leadership changes.

Guidance pressure and leadership changes

As reported by CNBC, Zscaler says it expects 16% to 17% year-over-year annual recurring revenue growth in fiscal 2027, below StreetAccount estimates, while its revenue outlook for the current quarter of $875 million to $878 million also comes in slightly under the $878.6 million expected by FactSet.

The company projects ARR of $3.74 billion to $3.75 billion in fiscal 2026, or about 24% year-over-year growth. Finance chief Kevin Rubin says Zscaler is taking a prudent approach to guidance amid transitions after losing two sales leaders during the quarter.

Zscaler also says memory constraints, rising prices and other costs will lift capital expenditures as a share of revenue by 200 basis points during fiscal 2027. Chief Executive Jay Chaudhry tells CNBC the company remains disciplined in its projections but still sees significant market opportunity, adding that demand for cybersecurity continues to expand as AI-related threats grow.

Market reaction and sector implications

Zscaler still beats fiscal third-quarter expectations, posting adjusted earnings of $1.08 per share on $850 million in revenue, ahead of analyst forecasts for adjusted earnings of $1.01 per share on about $835 million in revenue. Even so, the stronger quarterly print is overshadowed by concern over slower future growth, executive turnover and higher spending needs.

Investor sentiment has already turned weaker across software stocks on worries that artificial intelligence could disrupt existing business models, and that pressure has spread to cybersecurity names. At the same time, the rise of AI-powered cyber threats is reinforcing expectations that enterprises will keep investing in digital defenses, creating a more complex backdrop for the sector.

Over the last year, Zscaler has lost about half its market value. After the earnings report, Evercore ISI downgrades the shares to in line from outperform and cuts its price target, citing the weak fiscal 2027 outlook, the leadership shakeup and the potential for further disruption.

In our earlier article on CrowdStrike’s CRWD stock outlook, we examined how the company’s AI-related product integration and a ratings upgrade supported demand even as the shares showed overbought signals and elevated volatility. We also highlighted a likely near-term consolidation range and the risk of a pullback if key support levels fail—an important backdrop as investors reassess growth durability across the cybersecurity sector.

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