Industry Overview - The cybersecurity market is projected to witness a compound annual growth rate (CAGR) of 12.28% from 2026 to 2031, driven by an increase in cyberattacks and the need for enhanced security measures [2]. Company Analysis: Zscaler, Inc. (ZS) - Zscaler offers a comprehensive suite of enterprise security tools, including web security, antivirus, firewalls, and vulnerability management, with a focus on automating risk detection and response [3]. - The company reported a 26% year-over-year revenue increase to $788 million in Q1 of fiscal 2026, with non-GAAP earnings rising approximately 24% to 96 cents per share [5]. - Zscaler is integrating artificial intelligence (AI) into its offerings, with AI security revenue reaching $400 million annual recurring revenue (ARR) at the end of Q1, expected to exceed $500 million in fiscal 2026 [6]. - Despite impressive growth, Zscaler's gross margin decreased to 79.9% from 80.6% year-over-year due to newer products prioritizing speed over profitability [7]. Company Analysis: Qualys, Inc. (QLYS) - Qualys is a leading provider of Vulnerability Management, Detection and Response (VMDR) solutions, experiencing increased customer penetration and product enhancements [8]. - The company reported a 10% year-over-year revenue growth to $175.3 million in Q4 of 2025, with earnings per share increasing by 16.9% to $1.87 [10]. - Qualys is expanding globally, achieving a 15% year-over-year growth in international revenue, which supports customer acquisition without significant acquisition costs [11]. - The total addressable market for Qualys is expected to reach $75 billion by 2029, growing at a CAGR of approximately 12.3%, targeting high-growth areas like cloud security and security analytics [12]. Comparative Analysis - Over the past three months, Zscaler's shares declined by 38.5%, while Qualys' shares fell by 24.3% [14]. - Zscaler trades at a forward sales multiple of 7.51, significantly higher than Qualys' 5.14, indicating a premium for Zscaler despite its tightening gross margins [14]. - The Zacks Consensus Estimate suggests that Qualys will see a 7.8% year-over-year revenue increase to $721.5 million in 2026, with earnings per share projected to rise by 3.5% to $7.32 [13]. Conclusion - While both companies are strong players in the cybersecurity sector, Qualys appears more attractive due to steadier growth and a lower valuation compared to Zscaler, which faces gross margin pressures and a higher valuation [18].

Core Viewpoint - Palo Alto Networks' stock dropped over 9% following its second-quarter earnings report, negatively impacting the cybersecurity sector, with Datadog down over 4%, Zscaler down 3.4%, Fortinet down nearly 2%, and Cloudflare down 1.3% [1] Financial Performance - Palo Alto Networks reported a second-quarter earnings miss and lowered its future guidance, expecting adjusted earnings per share (EPS) for the third quarter to be between $0.78 and $0.80, down from the previous estimate of $0.92 [1] - The company anticipates full-year adjusted EPS to be between $3.65 and $3.70, a decrease from the prior forecast of $3.87 [1]

Group 1 - AI technology presents both opportunities and risks, as it can be utilized for beneficial purposes or malicious attacks [1] - The use of AI in cybersecurity allows for rapid identification of vulnerabilities, making it easier for hackers to exploit weaknesses in company defenses [2] - Companies are urged to enhance their security measures around AI, as existing protections can be implemented to mitigate risks [3] Group 2 - Investors are concerned that advanced AI could replace traditional software workloads, impacting the stock performance of companies in the software sector [4] - There is skepticism regarding the feasibility of switching critical systems, such as core banking, to AI-driven solutions due to the need for reliability and security [5] - The rise of agentic AI creates new opportunities for cybersecurity firms, as the number of AI agents will increase, necessitating enhanced protection measures [6]

My Buy call in May last year on Zscaler ( ZS ) was based on sustained growth above 20% and margin strength. Both have happened, and the stock was up by ~50% after the call. The current share prices are ~22% down fromI am a stock analyst with over 20 years of experience in quantitative research, financial modeling, and risk management. My focus is on equity valuation, market trends, and portfolio optimization to uncover high-growth investment opportunities. As a former Vice President at Barclays, I led teams ...

Core Insights - Industrial markets are experiencing a resurgence, leading to increased demand for factory automation inputs such as machine tools and robotics [1] Industry Summary - The revival in industrial markets is positively impacting the demand for automation technologies, indicating a potential growth opportunity for companies involved in this sector [1]

Core Insights - Zscaler, Inc. (ZS) shares have declined 38.5% over the past six months, underperforming the Zacks Computer and Technology sector, which rose by 10.4% [1][8] - The company's stock drop is attributed to macroeconomic headwinds, including inflation, high interest rates, and cautious enterprise IT spending, along with increasing competition in the Zero Trust cybersecurity space [4][10] Financial Performance - Zscaler reported a 26% year-over-year revenue growth to $788 million in Q1 fiscal 2026, achieving a record operating margin of 22% [8][11] - The company has a growing customer base, with 698 customers generating $1 million or more in annual recurring revenues (ARR), including a significant portion from Fortune 500 and Global 2000 companies [12] Competitive Positioning - Zscaler's forward 12-month price-to-sales (P/S) ratio is 7.49, which is higher than the sector average of 6.54, indicating a premium valuation [5] - Compared to competitors, Zscaler trades at a lower P/S multiple than Palo Alto Networks (10.22) and Fortinet (8.58), but higher than Cisco Systems (5.46) [9] Growth Drivers - Zscaler's AI Security, Zero Trust, and Data Security units have crossed the $1 billion ARR milestone, indicating strong growth potential [17] - AI Security alone reached $400 million ARR and is expected to exceed $500 million in fiscal 2026, driven by enterprise adoption of AI technologies [18][19] - The Z-Flex program has generated over $175 million in total contract value bookings in Q1 fiscal 2026, reflecting a 70% sequential increase and encouraging long-term commitments from customers [20] Long-Term Outlook - Despite current challenges, Zscaler's investments in AI and innovative cybersecurity capabilities position the company for sustained growth [21] - The Zacks Consensus Estimate indicates strong double-digit revenue and earnings per share growth for fiscal 2026 and 2027 [13]

Core Insights - Zscaler has acquired SquareX to enhance its Zero Trust capabilities in browser security for the AI era, allowing organizations to secure any browser on any device without needing third-party browsers [1][4] Company Developments - The acquisition of SquareX aims to redefine browser security by enabling lightweight extensions in standard browsers like Google Chrome and Microsoft Edge, thus eliminating the reliance on traditional VPNs and VDIs [1][3][4] - Zscaler's Zero Trust architecture, exemplified by Zscaler Private Access™ (ZPA™), is designed to provide unmatched security and device posture checks to millions of users, setting a new standard for secure enterprise connectivity [2][4] Industry Context - The shift from legacy VPNs and VDIs to a true Zero Trust architecture is driven by the need for enhanced security in a landscape increasingly threatened by cyberattacks [2][4] - Zscaler's integration with SquareX will allow organizations to secure SaaS and private applications across both managed and BYOD devices, promoting productivity while implementing precise Zero Trust policies tailored to specific risk profiles [4]

Core Insights - Zscaler, Inc. will release its second quarter fiscal year 2026 earnings on February 26, 2026, after market close [1] - An investor conference call will be held on the same day at 1:30 p.m. Pacific time to discuss the earnings results [1][2] Company Overview - Zscaler is a global leader in zero trust security, serving large businesses, critical infrastructure organizations, and government agencies [3] - The company operates over 160 data centers worldwide and utilizes its Zero Trust Exchange™ platform combined with advanced AI to combat cyber threats and policy violations [3] - Zscaler's solutions aim to enhance productivity for modern enterprises by reducing costs and complexity [3]

Group 1 - Datadog's stock price decreased by 8.1% [1] - Atlassian's stock price fell by 11% [1] - Workday's stock price dropped by 10.3% [1] - CrowdStrike's stock price declined by 7.3% [1] - Intuit's stock price decreased by 7.3% [1] - Adobe's stock price fell by 4.5% [1] - Zscaler's stock price dropped by 7% [1]

Core Viewpoint - Zscaler has been experiencing a decline in stock performance, with a -5.9% return over the past month, contrasting with the S&P 500's +0.4% and the Zacks Security industry's -1.5% [2] Earnings Estimate Revisions - Zscaler is projected to report earnings of $0.89 per share for the current quarter, reflecting a +14.1% increase year-over-year, although the Zacks Consensus Estimate has decreased by -0.7% in the last 30 days [5] - For the current fiscal year, the consensus earnings estimate is $3.8, indicating a +15.9% change from the previous year, with a notable increase of +16.7% in the last month [5] - The next fiscal year's consensus earnings estimate stands at $4.37, showing a +15.1% change from the prior year, with a slight increase of +0.1% over the past month [6] - Zscaler holds a Zacks Rank 3 (Hold), indicating a neutral outlook based on earnings estimate revisions [7] Revenue Growth Forecast - The consensus sales estimate for Zscaler is $798 million for the current quarter, representing a year-over-year growth of +23.2% [11] - For the current fiscal year, the sales estimates are $3.29 billion and $3.94 billion, indicating growth rates of +23.1% and +19.7%, respectively [11] Last Reported Results and Surprise History - In the last reported quarter, Zscaler achieved revenues of $788.11 million, a +25.5% increase year-over-year, and an EPS of $0.96 compared to $0.77 a year ago [12] - The company exceeded the Zacks Consensus Estimate for revenues by +1.91% and for EPS by +12.94% [12] - Zscaler has consistently beaten consensus EPS and revenue estimates in the last four quarters [13] Valuation - Zscaler is currently graded F on the Zacks Value Style Score, indicating it is trading at a premium compared to its peers [17]