Zscaler's Z-Flex Adoption Surges: Will It Be a New Growth Engine?

Core Insights - Zscaler, Inc. (ZS) is experiencing significant growth from its Z-Flex program, which allows customers to commit to spending levels while maintaining flexibility to adjust modules later, potentially driving future growth [1][2] Group 1: Z-Flex Program Performance - Z-Flex was introduced in Q3 of fiscal 2025 and generated over $175 million in total contract value bookings in Q1 of fiscal 2026, marking a 70% sequential increase, indicating strong customer interest in flexible licensing [2][11] - The program is enhancing relationships with existing clients, leading to increased annual spending as enterprises adopt multiple modules under Z-Flex, which is crucial for Zscaler's strategy focused on platform adoption across various security offerings [3][5] - Z-Flex is facilitating larger deal sizes, as customers are more inclined to commit to broader deployments knowing they can adjust product choices later, thus accelerating sales cycles [4][11] Group 2: Financial Outlook - The early success of the Z-Flex program suggests it could become a sustainable growth engine for Zscaler, with the Zacks Consensus Estimate projecting revenue growth of 23.2% for fiscal 2026 and 19.8% for fiscal 2027 [5] - Zscaler's shares have decreased by 14.8% over the past year, slightly better than the Zacks Security industry's decline of 15.6% [9] - The company trades at a forward price-to-sales ratio of 7.37, which is below the industry average of 10.01, indicating potential undervaluation [13] Group 3: Competitive Landscape - Zscaler faces competition from Palo Alto Networks, Inc. and CrowdStrike Holdings, Inc., both of which employ similar platform-driven growth strategies with flexible bundles to enhance customer spending [6][8] - Palo Alto Networks offers subscription pricing and bundled offerings that can provide 10-15% savings compared to purchasing products separately, encouraging broader platform adoption [7] - CrowdStrike's Falcon platform bundles and Falcon Flex licensing model allow customers to add modules without new procurement cycles, contributing to a significant year-over-year growth in annual recurring revenue [8]