Zscaler Sees Slower Growth and Valuation Drop Amid Changing Financial Metrics
Zscaler (ZS) reported strong fiscal fourth-quarter results in FY26, with revenue rising to $898.2 million (+25% YoY), total ARR reaching $3.8 billion (+25%), and net new ARR growth excluding Red Canary hitting a recent high of 17%. However, the company's guidance for FY27 suggests a significant slowdown in future performance, with implied net new ARR growth dropping to around 4%, far below its current pace. Deferred revenue—a key forward-looking metric—has been declining since FY22. In FY26, it grew just 18.5% compared to the previous year's peak of 62%. This trend indicates a cooling in underlying billings before management officially acknowledged it. Free cash flow (FCF) also declined marginally from $808 million in FY25 to $852 million in FY26, with FCF margins falling nearly 500 basis points due to rising data center capital expenditures. Zscaler's valuation has already adjusted significantly: its next twelve months (NTM) price-to-earnings multiple dropped from over 100x four years ago to around 40x today. This suggests that much of the anticipated slowdown in growth is already reflected in stock prices, even before FY27 begins.
Tickers: $ZS
Topics: ARR growth revenue guidance valuation decline Zscaler