Zscaler Stock Plunges 9% After Strong Q2 Results and Raised Outlook

TLDR

• Zscaler delivered Q2 FY2026 adjusted EPS of $1.01 on $816M revenue, surpassing Wall Street projections
• Shares plummeted 9% in Friday’s pre-market session following the earnings announcement
• Raised full-year EPS forecast to $3.99–$4.02, exceeding the $3.92 analyst consensus
• YTD performance shows a 26% decline, mirroring broader software sector valuation concerns
• Company operates at a “Rule-of-62” efficiency metric, significantly surpassing the Rule-of-40 industry standard

Zscaler $ZS delivered impressive fiscal Q2 results, yet investors responded by sending shares lower. This reaction encapsulates the current state of software sector trading.

The cloud security provider reported adjusted earnings of $1.01 per share, beating analyst expectations of $0.89 by a significant $0.12 margin. The company generated $815.8 million in revenue, representing 26% annual growth and exceeding consensus projections of $798 million.

Yet these strong results weren’t enough to lift the stock, which declined approximately 9% during Friday’s pre-market session.

Zscaler, Inc., ZS

The week proved volatile for ZS shareholders. Monday saw a 10% plunge amid AI-driven market turbulence. The following three trading days brought a 17% recovery before Thursday’s earnings release triggered another downturn.

Looking ahead to Q3 FY2026, Zscaler projects adjusted EPS between $1.00 and $1.01, comfortably above the $0.95 Wall Street consensus. The company anticipates revenue in the $834 million to $836 million range, modestly exceeding analyst estimates of $831.9 million.

Management elevated full-year FY2026 guidance, now targeting adjusted EPS of $3.99–$4.02 versus the previous $3.82 consensus. Annual revenue expectations were set at $3.309 billion to $3.322 billion, slightly above the $3.3 billion estimate.

CEO Jay Chaudhry emphasized the company’s strategic positioning around artificial intelligence, noting that enterprises accelerating AI deployment are leveraging Zscaler’s infrastructure to protect AI-powered and agentic systems.

Rule-of-62

CFO Kevin Rubin highlighted an impressive operational efficiency metric. Zscaler is currently operating at a “Rule-of-62” on a fiscal year-to-date basis.

This metric blends revenue growth rate with profit margins. While the Rule-of-40 represents the baseline for healthy software businesses, Zscaler’s performance substantially exceeds this threshold.

A Rough Year for ZS

Prior to the earnings release, ZS had already fallen 26% in 2026. The post-earnings selloff compounds the challenges facing a stock that has struggled to gain traction throughout the year.

This week’s price action illustrates the current mindset among software investors. A 10% decline, followed by a 17% recovery, then another sharp drop despite strong results—the market remains indecisive about proper valuations for these companies.

The Q3 forecast calling for $834–$836 million in revenue and EPS of $1.00–$1.01 continues to exceed analyst projections.

The post Zscaler Stock Plunges 9% After Strong Q2 Results and Raised Outlook appeared first on Blockonomi.