Zscaler (ZS) Stock Falls 9% Despite Q2 Earnings Beat and Guidance Raise

TLDR

• Zscaler posted adjusted EPS of $1.01 and revenue of $816M in Q2 FY2026, beating estimates on both counts
• The stock fell 9% pre-market Friday despite the earnings beat
• Full-year EPS guidance of $3.99–$4.02 topped the $3.92 consensus
• The stock is down 26% year-to-date, reflecting broader uncertainty around software valuations
• CFO Kevin Rubin noted the company is operating at a “Rule-of-62,” well above the Rule-of-40 benchmark

Zscaler $ZS reported a solid fiscal second quarter, then watched its stock drop anyway. That’s the software market in a nutshell right now.

The cybersecurity company posted adjusted earnings of $1.01 per share, clearing the Wall Street estimate of $0.89 by $0.12. Revenue came in at $815.8 million, up 26% year-over-year and ahead of the $798 million consensus.

Despite those numbers, the stock fell around 9% in pre-market trading on Friday.

Zscaler, Inc., ZS

It capped a chaotic week. ZS dropped 10% on Monday as AI-related panic hit the broader market. It then rebounded 17% over the next three sessions before Thursday’s earnings report sent it back down.

For Q3 FY2026, Zscaler guided for adjusted EPS of $1.00 to $1.01, above the $0.95 consensus. Revenue is projected between $834 million and $836 million, slightly ahead of the $831.9 million estimate.

Full-year FY2026 guidance was raised to adjusted EPS of $3.99–$4.02, topping the prior consensus of $3.82. Full-year revenue is forecast at $3.309 billion to $3.322 billion, modestly above the $3.3 billion estimate.

CEO Jay Chaudhry framed the company’s position around AI, saying organizations accelerating AI adoption are using Zscaler’s platform to secure AI-driven and agentic workflows.

Rule-of-62

CFO Kevin Rubin pointed to a standout efficiency metric. He said Zscaler is operating at a “Rule-of-62” on a fiscal year-to-date basis.

That’s a measure combining revenue growth and profit margin. The Rule-of-40 is the standard benchmark for healthy software companies — Zscaler is running well above it.

A Rough Year for ZS

Heading into earnings, ZS was already down 26% in 2026. The post-earnings drop adds more pressure on a stock that has struggled to find footing this year.

The swings this week tell the story of where software investors are right now. A 10% drop, a 17% bounce, then another sharp decline on a genuine beat — the market clearly hasn’t decided how to value these companies.

The Q3 outlook of $834–$836 million in revenue and EPS of $1.00–$1.01 remains ahead of what analysts had penciled in.

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