TLDR
- Zscaler posted Q2 FY2026 adjusted earnings of $1.01 per share on revenue of $816M, beating analyst estimates
- Stock tumbled 9% during Friday’s pre-market trading despite the earnings beat
- Full-year adjusted EPS guidance increased to $3.99–$4.02, above the $3.92 consensus estimate
- Year-to-date performance reveals a 26% drop, reflecting widespread software sector concerns
- The firm maintains a “Rule-of-62” efficiency ratio, far exceeding the industry’s Rule-of-40 benchmark
Despite posting solid fiscal Q2 numbers, Zscaler $ZS watched its share price tumble. The market’s reaction perfectly illustrates the current uncertainty plaguing software stocks.
The cybersecurity company posted adjusted earnings of $1.01 per share for the quarter, handily topping the analyst consensus of $0.89 by $0.12. Revenue reached $815.8 million, marking 26% year-over-year growth and surpassing Wall Street’s $798 million estimate.
Despite these positive figures, the market wasn’t impressed. Shares tumbled roughly 9% in Friday’s pre-market trading.
The week delivered considerable volatility for ZS investors. A 10% drop on Monday amid AI-related market chaos was followed by a three-day rally that recovered 17% of value. Thursday’s earnings report then sparked another selloff.
For Q3 FY2026, Zscaler forecasts adjusted earnings per share between $1.00 and $1.01, surpassing the $0.95 Street estimate. Revenue is expected to land between $834 million and $836 million, marginally above analyst projections of $831.9 million.
The company also raised its full-year FY2026 outlook, now projecting adjusted EPS of $3.99–$4.02 compared to the prior consensus of $3.82. Full-year revenue guidance was established at $3.309 billion to $3.322 billion, marginally above the $3.3 billion Street expectation.
CEO Jay Chaudhry highlighted the company’s strategic focus on artificial intelligence, explaining that organizations rapidly adopting AI are utilizing Zscaler’s platform to secure AI-driven and agentic systems.
Chaudhry described Zscaler as the “cybersecurity platform for the AI age,” highlighting how the company’s Zero Trust framework is perfectly positioned to handle the speed and scale of AI and agentic workflows.
Rule-of-62
CFO Kevin Rubin drew attention to a remarkable operational efficiency figure. Zscaler currently maintains a “Rule-of-62” on a year-to-date basis.
This calculation combines revenue growth percentage with operating margin. The Rule-of-40 is generally considered the minimum standard for healthy software companies, meaning Zscaler’s achievement significantly outperforms this benchmark.
A Rough Year for ZS
Before earnings were announced, ZS had already declined 26% year-to-date in 2026. The post-earnings drop only adds to the difficulties facing a stock that has encountered headwinds all year.
This week’s volatile trading pattern exemplifies the current investor sentiment in software stocks. A 10% plunge, followed by a 17% bounce, then another steep drop despite beating estimates—the market continues to grapple with appropriate valuations.
The Q3 guidance projecting $834–$836 million in revenue with EPS of $1.00–$1.01 still surpasses what analysts had anticipated.
