Zscaler ((ZS)) has held its Q4 earnings call. Read on for the main highlights of the call.
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Zscaler’s recent earnings call painted a picture of robust performance and promising growth, despite a few challenges. The company reported significant increases in revenue, annual recurring revenue (ARR), and the adoption of innovative technologies such as AI and Zero Trust. Although there was a slight dip in gross margin and higher churn in the newly acquired Red Canary segment, the overall sentiment was positive, reflecting strong business momentum.
Strong Revenue Growth
Zscaler reported a remarkable 21% year-over-year growth in revenue, with an operating margin exceeding 22%, marking a quarterly record. This impressive performance underscores the company’s ability to maintain strong financial health and operational efficiency.
Annual Recurring Revenue (ARR) Milestone
The company achieved a significant milestone by increasing its ARR by 22% year-over-year, surpassing $3 billion. This achievement positions Zscaler as one of only two pure-play SaaS security vendors to reach such a milestone, highlighting its leadership in the industry.
Free Cash Flow and Rule of 50
For fiscal year 2025, Zscaler reported a revenue growth of 23% with a free cash flow margin of 27%, operating under the rule of 50. This demonstrates the company’s strong cash generation capabilities and efficient financial management.
Expansion of Zero Trust Everywhere
Zscaler’s Zero Trust Everywhere initiative continues to expand, with the number of enterprises adopting this approach growing to over 350. The company aims to secure 390 enterprises by the end of fiscal 2026, reflecting its commitment to enhancing security measures across industries.
Strong Demand for AI and Data Security Solutions
The demand for Zscaler’s AI security solutions and data security offerings remains robust, with ARR reaching approximately $425 million. This strong demand has led to significant deal wins, further solidifying Zscaler’s position in the market.
Gross Margin Decline
The company’s gross margin experienced a slight decline to 79.3%, falling short of the historical target of 80%. This was attributed to a one-time deployment of a large private cloud in a government customer’s data center, indicating a temporary setback rather than a long-term trend.
Higher Churn in New Business Segment
Zscaler’s newly acquired Red Canary segment has shown a higher churn rate, which is typical for new business areas. The company is likely to focus on strategies to stabilize and optimize this segment moving forward.
Forward-Looking Guidance
Looking ahead, Zscaler provided an optimistic outlook with expectations of ARR between $3.676 billion and $3.698 billion and revenue growth of approximately 22% to 23% for fiscal 2026. The company is concentrating on three growth vectors: AI security, Zero Trust Everywhere, and Data Security Everywhere, which collectively surpassed $1 billion in ARR in Q4. Additionally, the introduction of the Z Flex program, which generated over $100 million in TCV bookings in Q4, is anticipated to be a significant growth driver in the coming fiscal year.
In conclusion, Zscaler’s earnings call highlighted a strong performance with notable growth in key areas, despite minor challenges. The company’s forward-looking guidance suggests continued momentum, driven by strategic initiatives in AI and security solutions. Investors and stakeholders can remain optimistic about Zscaler’s future prospects as it continues to innovate and expand its market presence.