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While still operating under a challenging IT spending environment, cybersecurity company Zscaler (ZS) delivered a strong beat-and-raise Q2 earnings report with accelerating billings growth. The provider of Zero Trust products is capitalizing on its go-to-market investments and a corresponding improvement in sales productivity, leading to likely market shares against competitors such as Palo Alto Networks (PANW) and Microsoft (MSFT). While PANW no longer provides billings data, its billings growth was in the 9-10% range a couple of quarters ago, while ZS reported billings growth of 18% last night.

Even as ZS ramps up its marketing and sales investments, the company's profitability continues to increase. In Q2, operating profit margin expanded by two percentage points to nearly 22%, while free cash flow margin also hit a new record at 22%.

• The company saw double-digit growth in both the new and upsell businesses, reflecting the stronger sales execution. Moving ahead, ZS expects this higher sales productivity to continue due to the growing number of ramped sales reps and the launch of its new "Zero Trust Everywhere" marketing campaign.
• That marketing campaign centers on the idea that ZS's platform is now capable of securing much more than workforces' PCs, phones, and devices. For instance, its capabilities have expanded into IoT/OT devices and B2B systems. 
• Bolstered by its expanded capabilities, ZS believes it's in good position to capitalize on an upcoming hardware refresh cycle that will prompt IT teams to reduce security risks tied to VPNs, SD-WANs, and firewalls.
• Another rising catalyst revolves around GenAI, particularly for data loss and protection with the launch of new apps like 365 Copilot, DeepSeek, and ChatGPT. With the launch of these technologies, the importance of data protection is only increasing, causing more ZS customers to purchase its products in order to gain visibility into public-AI apps. 
• Taking into account the above factors, ZS raised its FY26 billings guidance by $24.0 mln to $3.153-$3.168 bln, implying growth of about 21%. Importantly, the healthy growth won't come at the expense of profitability with ZS issuing upside EPS guidance of $3.04-$3.09.

There is little to complain about here as ZS delivered solid, upside results in a difficult and competitive market. Looking ahead, the future looks bright for ZS as the proliferation of new AI technologies will necessitate more tools for data protection and loss.