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Zscaler (ZS) is trading lower after reporting its Q4 (Jul) results last nights. This cloud-based cybersecurity company delivered a solid EPS beat while revenue increased 21.3% yr/yr to 719.23 mln. The company also issued Q1 and FY26 EPS guidance in-line with consensus estimates while revenue was above.

• The company is seeing growing demand for its cyber and AI security, particularly in its new AI Guard and Gen AI security offerings as the rapid adoption of AI creates new security challenges. As a result, annual recurring revenue (ARR) increased 22% yr/yr and surpassed $3 bln. Its remaining performance obligation (RPO) grew approximately 31% year-over-year to $5.8 bln, with approximately 46% classified as current RPO.
• The company has three growth vectors, AI security, Zero Trust Everywhere and Data Security Everywhere, which together surpassed $1 bln in ARR in Q4. Company expects growth in these areas to continue, and to accelerate adoption it recently introduced Z-Flex, which generated $100 mln in TCV bookings, representing over 50% sequential growth.
• Gross margin was 79.3% on a one-time lower-margin government deployment and is expected to return to ~80% in Q1. Operating margin rose to 22.1%, up 60 bps yr/yr and a quarterly record.
• Company now uses ARR as primary growth metric. FY26 ARR guidance: $3.676-3.698B (~22% growth). Revenue guidance for Q1 and FY26: $772-774 mln and $3.265-3.284 bln (~22--23%). Revenue growth has not fallen below 21% in the last five years.

Briefing.com Analyst Insight

Despite the strong Q4 report, shares are trading lower. The stock has really been on an impressive run, so its possible investors may be taking profits. Also, investors may have wanted to see more with its EPS guidance for Q1 and FY26. EPS guidance was in line with expectations, and given the company's history of earnings beats and typically guiding above consensus, this likely tempered enthusiasm. Still, the company hasn't missed expectations in 5 years, and the risks/opportunities created by rapid AI adoption bode well for the company.