Zscaler (ZS) Stock: Drops 9% After Hours Despite Beating Q1 Earnings and Raising Outlook

TLDR

• Zscaler beat Q1 fiscal 2026 estimates with $0.96 EPS versus $0.86 expected and revenue of $788.1 million versus $773.26 million forecast
• Annual Recurring Revenue climbed 26% to $3.2 billion while deferred revenue surged 32% to $2.35 billion
• Company raised full-year revenue guidance to $3.28-$3.30 billion and EPS forecast to $3.78-$3.82
• Shares fell 9% in extended trading to $266.90 despite strong results
• Stock has climbed over 60% year-to-date before Monday’s after-hours drop

Zscaler reported first-quarter fiscal 2026 results Monday that exceeded Wall Street expectations across the board. Yet shares tumbled 9% in after-hours trading.

Zscaler, Inc., ZS

The cloud security company posted adjusted earnings of $0.96 per share, crushing analyst estimates of $0.86. Revenue grew 26% year-over-year to $788.1 million, surpassing the $773.26 million consensus.

The negative market reaction suggests investors anticipated even stronger performance. The stock has already gained over 60% year-to-date, potentially creating elevated expectations.

Annual Recurring Revenue reached $3.2 billion, growing 26% from the prior year. Deferred revenue jumped 32% to $2.35 billion, accelerating from 30% growth in the previous quarter.

Strong Guidance Across Key Metrics

The company provided upbeat second-quarter guidance. Revenue is expected between $797 million and $799 million, above the $796.1 million consensus estimate.

Zscaler projects Q2 adjusted earnings of $0.89 to $0.90 per share, matching analyst expectations. Full-year fiscal 2026 guidance received an upgrade across multiple metrics.

The company now expects full-year revenue of $3.28 billion to $3.30 billion. Adjusted EPS guidance for the year stands at $3.78 to $3.82, both figures topping consensus forecasts.

Full-year ARR guidance increased to a range of $3.698 billion to $3.718 billion. Non-GAAP income from operations hit $171.9 million, representing 22% of revenue compared to 21% in the prior-year quarter.

Tax Rate Reduction and Platform Expansion

Zscaler announced a reduced adjusted tax rate of 21%, down from 23% previously. The change aligns with the enactment of the “One Big Beautiful Bill Act” and became effective in the first quarter.

The CEO noted that over $3.2 billion in Annual Recurring Revenue reflects growing customer adoption. Companies increasingly rely on the platform for enhanced security, reduced operational costs and simplified IT infrastructure.

Shares dropped to $266.90 in extended trading following the earnings announcement. The stock’s strong year-to-date performance may have set a high bar for quarterly results.

Retail sentiment improved after the earnings print, according to market tracking data. The company’s Zero Trust and AI security solutions continue attracting enterprise customers.

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