Core Insights - Zscaler (ZS) reported a 23% year-over-year revenue increase to $678 million for Q3 of fiscal 2025, but experienced a slight decline in non-GAAP gross margins to 80.3%, down from 81.4% a year ago, reflecting a 110-basis point contraction [1][11] Revenue and Growth - The company achieved a revenue growth of 24% and a free cash flow margin of 28% year-to-date, resulting in a combined score of 52%, known as the Rule of 52, marking the 21st consecutive quarter of exceeding the Rule of 40 benchmark [5][11] Margin Dynamics - The decline in gross margins is attributed to the rollout of new products aimed at quickly gaining market share rather than focusing on high margins initially. Management plans to improve margins once these products reach scale [2][6] - Zscaler's gross margin is projected to be 80% for Q4 of fiscal 2025, indicating a sequential decline of 30 basis points [6] Product Development - Recent introductions of fast-growing modules under categories like Zero Trust Everywhere and Data Security Everywhere are attracting large deals and expanding annual recurring revenue (ARR), although they are not yet margin-optimized [3][4] - The Z-Flex program, which offers flexible purchasing options, has contributed over $65 million in total contract value in Q3, but often bundles lower-margin modules, complicating near-term margin stability [4] Competitive Landscape - Competitors like CrowdStrike and Okta are also evolving their platforms to meet enterprise security demands, with CrowdStrike enhancing its identity security platform using AI solutions, and Okta focusing on identity and access management with AI for real-time detection of identity attacks [7][8] Valuation and Estimates - Zscaler's shares have increased by 74.4% year-to-date, outperforming the Security industry's growth of 22.1% [9] - The company trades at a forward price-to-sales ratio of 15.32X, higher than the industry average of 14.67X [12] - Earnings estimates for fiscal 2025 imply a year-over-year decline of 0.31%, while fiscal 2026 estimates suggest a growth of 12.01%, with upward revisions in the past 60 and 30 days respectively [15]

Core Insights - Zscaler (ZS) achieved $2.9 billion in annual recurring revenues (ARR) for Q3 fiscal 2025, marking a 23% year-over-year growth for the third consecutive quarter, with a target of reaching $3 billion ARR by the end of Q4 fiscal 2025 [1][10] Group 1: Growth Drivers - The Z-Flex purchasing program, launched in Q3, simplified procurement and generated $65 million in total contract value (TCV) bookings, with significant ARR increases from major clients [2] - Zscaler's strategic focus on three pillars—Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations—contributes nearly $1 billion in ARR [3] Group 2: Customer Expansion - The Zero Trust Everywhere initiative saw a 60% increase in enterprise customers, growing from 130 to over 210, with a goal to reach over 390 by the end of fiscal 2026 [4] - Zscaler has 642 customers generating over $1 million in ARR and 3,363 customers with ARR exceeding $100,000, indicating strong retention and expansion within existing accounts [5] Group 3: Competitive Landscape - Competitors like CyberArk and SentinelOne are also experiencing growth, with CyberArk reporting $1.215 billion in ARR (50% year-over-year increase) and SentinelOne reaching $948 million in ARR (24% year-over-year increase) [6][7] Group 4: Stock Performance and Valuation - Zscaler's shares have increased by 66.3% year-to-date, outperforming the Zacks Security industry's growth of 22% [8] - The forward price-to-sales ratio for Zscaler is 15.21, slightly above the industry average of 14.77 [15]

Q3 2025 Financial Performance - Revenue for Q3 2025 reached $678 million, exceeding guidance, representing a 23% year-over-year increase[6] - Calculated billings for Q3 2025 totaled $785 million, exceeding expectations with a 600 bps Q/Q increase[6] - Calculated Current Billings reached $760 million, a 24% year-over-year increase[6] - The company achieved a gross margin of 80.3% and an operating margin of 21.6%[6] - EPS for Q3 2025 was $0.84, an 18% year-over-year increase[6] - Free cash flow was $119 million, representing an 18% margin[6] Key Business Metrics and Growth - Remaining Performance Obligations (RPO) reached approximately $5 billion, with a 30% year-over-year growth[8] - Annual Recurring Revenue (ARR) reached approximately $2.9 billion, with a 23% year-over-year growth[8] - TCV Bookings exceeded $1 billion, marking a Q3 record[8] - New growth categories ARR is growing faster than total ARR, approaching $1 billion in combined ARR[8, 30] Strategic Initiatives and Customer Adoption - Over 210 enterprises are adopting "Zero Trust Everywhere," with a growth rate exceeding 60% quarter-over-quarter[8] - 59% of customers purchasing Zero Trust Branch were new logos[8] - Zscaler secured over 50 million total users on its platform[15] FY25 Guidance - The company increased its FY25 revenue guidance to $2.659 billion - $2.661 billion, representing approximately 23% year-over-year growth[59] - Calculated billings guidance for FY25 was increased to $3.184 billion - $3.189 billion, representing 21%-22% year-over-year growth[59] - Operating profit guidance for FY25 was increased to $573 million - $575 million, with an approximate 22% margin[59] - Earnings per share guidance for FY25 was increased to $3.18 - $3.19[59] - Free Cash Flow Margin guidance for FY25 was increased to 25.5%-26.0%[59]