TLDR
- Zscaler delivered adjusted earnings of $1.01 per share and $816M in Q2 revenue for FY2026, surpassing analyst projections
- Shares declined 9% in pre-market hours Friday following the quarterly report
- Annual EPS forecast of $3.99–$4.02 exceeded the Street’s $3.92 expectation
- Year-to-date performance shows a 26% decline, mirroring broader software sector headwinds
- CFO Kevin Rubin highlighted the firm’s “Rule-of-62” performance, significantly outpacing the industry’s Rule-of-40 standard
Zscaler $ZS delivered impressive fiscal Q2 results, only to see its shares retreat sharply. This reaction encapsulates the current state of software equities.
The cloud security provider reported adjusted earnings of $1.01 per share, exceeding analyst expectations of $0.89 by a notable margin of $0.12. Quarterly revenue reached $815.8 million, representing 26% year-over-year growth and surpassing the $798 million Street estimate.
Yet those strong metrics didn’t prevent shares from sliding approximately 9% during Friday’s pre-market session.
The decline punctuated a volatile trading week. Shares plummeted 10% Monday amid AI-driven market turbulence. The stock then recovered 17% across the following three sessions before Thursday’s earnings announcement triggered another selloff.
Looking ahead to Q3 FY2026, Zscaler projected adjusted earnings between $1.00 and $1.01 per share, surpassing the $0.95 analyst consensus. The company anticipates revenue in the $834 million to $836 million range, modestly above the $831.9 million Street forecast.
Management elevated full-year FY2026 guidance to adjusted EPS of $3.99–$4.02, exceeding the previous consensus of $3.82. Annual revenue projections now stand at $3.309 billion to $3.322 billion, slightly above the $3.3 billion estimate.
CEO Jay Chaudhry emphasized the company’s strategic positioning amid the AI revolution, noting that enterprises accelerating AI deployment are leveraging Zscaler’s infrastructure to protect AI-powered and autonomous agent workflows.
Chaudhry positioned Zscaler as the “cybersecurity platform for the AI age,” emphasizing that its Zero Trust architecture is uniquely equipped to address the velocity and complexity of AI and agentic systems.
Rule-of-62
CFO Kevin Rubin highlighted an impressive efficiency benchmark. He noted Zscaler is achieving a “Rule-of-62” performance on a year-to-date fiscal basis.
This metric blends revenue expansion with profitability margins. While the Rule-of-40 represents the established threshold for robust software businesses, Zscaler’s performance significantly exceeds that standard.
A Challenging Year for ZS
Prior to the earnings release, ZS had already declined 26% during 2026. The post-earnings selloff compounds pressure on shares that have struggled for momentum throughout the year.
This week’s price action illustrates the current mindset among software sector investors. A 10% plunge, followed by a 17% rally, then another sharp retreat despite solid results—the market remains uncertain about appropriate valuations for these businesses.
The Q3 guidance calling for $834–$836 million in revenue and earnings of $1.00–$1.01 per share still exceeds analyst projections.
