Zscaler Cuts FY Free Cash Flow Margin to 22.8%–23.3% After Q3 Beat
ZS•Zscaler reported Q3 revenue of $850.5 million, up 25% year-over-year, with adjusted EPS of $1.08 and ARR of $3.53 billion. It cut its full-year free cash flow margin forecast to 22.8%–23.3% from 26.5%–27% due to higher capex and lowered fiscal 2027 growth guidance to 16%–17%.
1. Q3 Financial Results
Zscaler posted Q3 revenue of $850.5 million, a 25% annual rise, with adjusted EPS of $1.08, surpassing forecasts. Annual recurring revenue reached $3.53 billion, up 25%, driven by strong demand for the Zero Trust platform.
2. Free Cash Flow Outlook Reduction
Management cut full-year FCF margin forecast to 22.8%–23.3%, down from 26.5%–27%, citing a substantial increase in capital expenditures to secure memory, storage and processor pricing ahead of cost inflation.
3. Fiscal 2027 Guidance and Leadership Changes
Zscaler projected fiscal 2027 revenue growth of 16%–17%, below the prior 20%-plus pace, and noted the departure of two senior sales executives as a factor in more cautious ARR forecasts.
4. Analyst Perspectives and Growth Drivers
Jefferies sees the reset as achievable and highlights Red Canary and Symmetry acquisitions, while Macquarie applies lower valuation multiples. Momentum in Z-Flex contracts, up over 60% quarter-on-quarter to $480 million, and interest in Zero Trust security against AI-driven threats could support future growth.
