Zscaler Shares Drop Despite Beating Earnings Estimates Due to Free Cash Flow Decline
Despite Zscaler Inc. (NASDAQ:ZS) reporting better-than-expected revenue and adjusted earnings for the fiscal fourth quarter, its shares fell by 3.5% due to a significant drop in free cash flow. The cybersecurity company reported $898.2 million in quarterly revenue—up 25% year-over-year—and an adjusted EPS of $1.19, both exceeding analyst estimates. However, free cash flow declined sharply to $60.8 million from $174 million a year ago and missed expectations by nearly $6 million. Zscaler's annual recurring revenue (ARR) reached $3.77 billion, up 25% YoY, while non-GAAP operating income came in at $218.4 million—above estimates of $207 million. The company provided guidance for fiscal 2027 with a projected ARR range between $4.40 billion and $4.43 billion and free cash flow margin expectations of 23% to 23.5%. Jefferies noted that while the results showed strong sales execution, ongoing leadership changes may have contributed to cautious guidance. The market reaction highlights investor concerns over declining free cash flow despite robust top-line growth.
Tickers: $ZS
Topics: cybersecurity earnings free cash flow stock price movement