Core Viewpoint - Zscaler is experiencing a strong recovery in its stock performance, with analysts showing a bullish consensus and the potential for reaching record highs for the first time since 2021 [1][2][12]. Company Performance - Zscaler reported $2.67 billion in revenue for fiscal 2025, marking a 23% increase from the previous year and exceeding management's forecast of $2.66 billion [9]. - The company managed to reduce its GAAP loss to $41.4 million, a 28% improvement from the prior year, while achieving a non-GAAP profit of $535.8 million, up 29% year-over-year [10][11]. Analyst Ratings - Among 49 analysts covering Zscaler, 30 have assigned a buy rating, with none recommending a sell, indicating strong market confidence [12]. - The average price target for Zscaler stock is $318.26, suggesting a potential upside of 13% over the next 12 to 18 months, with a Street-high target of $385 indicating a possible 37% upside [13]. Market Position and Strategy - Zscaler is a leader in zero-trust cybersecurity, addressing vulnerabilities created by the shift to online operations and remote work [4][5]. - The company aims to convince 390 organizations to adopt its Zero Trust Everywhere approach by the end of fiscal 2026, having already secured over 350 by the end of fiscal 2025 [8]. Valuation Metrics - Zscaler's price-to-sales (P/S) ratio has decreased to 16.5 from a peak of over 60 in 2021, positioning it competitively between rivals Palo Alto Networks and CrowdStrike [14]. - The company estimates its addressable market at $96 billion, indicating significant growth potential based on its fiscal 2025 revenue [16].

Financial Data and Key Metrics Changes - Revenue for Q4 2025 was $719 million, representing a 21% year-over-year growth and exceeding guidance [19] - Annual recurring revenue (ARR) surpassed $3 billion, marking a 22% year-over-year increase [19][6] - Operating margin reached 22.1%, a record high, with a free cash flow margin of 24% [21][19] - Gross margin was 79.3%, slightly lower than the historical target of 80% due to a one-time deployment [21] Business Line Data and Key Metrics Changes - AI Security, Zero Trust Everywhere, and Data Security Everywhere collectively surpassed $1 billion in ARR in Q4 [6] - SecOps ARR grew over 85% year-over-year, while ZDX Advanced Plus Queue bookings increased by 58% year-over-year [10] - Data Security Everywhere ARR grew to approximately $425 million, with significant deal wins [16] Market Data and Key Metrics Changes - The Americas accounted for 55% of revenue, EMEA for 29%, and APJ for 16% [20] - The company serves nearly 40% of the Global 2000 and over 45% of Fortune 500 companies [19][5] Company Strategy and Development Direction - The company is focusing on three growth vectors: AI Security, Zero Trust Everywhere, and Data Security Everywhere [6] - The ZFlex program is being utilized to facilitate strategic multi-year deals and increase module adoption [17] - The company aims to replace legacy solutions in various sectors, including finance, healthcare, and retail [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for their solutions, particularly in AI and Zero Trust security [5] - The company anticipates a stable macro environment for fiscal 2026, with a focus on ARR as the primary growth metric [24][72] - Management expects to continue strong growth in AI Security and Zero Trust solutions, with significant upsell opportunities [67] Other Important Information - The acquisition of Red Canary is expected to contribute approximately $95 million to ARR in fiscal 2026 [23] - The company ended Q4 with $3.6 billion in cash and short-term investments [23] Q&A Session Summary Question: How is SASE replacing firewall appliances? - Management indicated that Zero Trust architecture is essential, and firewall appliances are being phased out, starting with branch firewalls [29] Question: How will ZFlex be utilized by the sales force? - ZFlex is designed to provide flexibility in module adoption, allowing for larger and better deals, and is being expanded to a broader customer base [33] Question: What does a Zero Trust Everywhere customer look like? - A Zero Trust Everywhere customer typically adopts multiple modules, leading to significant increases in ARR [36] Question: What is the focus of AI security product adoption? - Customers are primarily interested in securing both public and private AI applications, with a growing focus on agent-to-agent communication [41] Question: What is the expected growth trajectory for net new ARR? - Management is guiding for high single-digit net new ARR growth in fiscal 2026 on an organic basis [46] Question: How is the data security portfolio performing? - Data security solutions are often purchased alongside Zero Trust solutions, with significant growth potential as customers consolidate their security products [49] Question: What is the impact of ZFlex on financial metrics? - ZFlex is applicable to both new and existing customers, increasing potential deal sizes without fundamentally changing the financial model [53]

Core Viewpoint - Zscaler's stock has surged by 51% in 2025, defying broader market pessimism, driven by strong financial performance and an optimistic outlook for future growth [1][3]. Financial Performance - Zscaler reported $678 million in revenue for the third quarter of fiscal 2025, marking a 23% increase year-over-year and exceeding management's guidance of $665 million to $667 million [9]. - The company raised its full-year revenue guidance for fiscal 2025 to $2.66 billion, up from a previous estimate of $2.647 billion [10]. - On a non-GAAP basis, Zscaler achieved a net income of $136.7 million, reflecting a year-over-year increase of 20.7% [11]. Market Position and Growth Potential - Zscaler's Zero Trust Exchange platform is rapidly expanding, with 210 customers adopting the "zero trust everywhere" approach, a 60% increase from the previous year [8]. - The company views its addressable market as worth $96 billion, indicating significant growth potential [14]. - Zscaler's remaining performance obligation (RPO) increased by 30% to $5 billion, suggesting an acceleration in future revenue growth [14]. Analyst Sentiment - The majority of analysts covering Zscaler stock have assigned it a buy rating, with none recommending a sell [12]. - The average price target for Zscaler stock is $285.98, indicating a potential upside of 3.7% over the next 12 to 18 months, with a high target of $323 suggesting a 17.1% increase [13].

Financial Data and Key Metrics Changes - Revenue for Q2 was $648 million, representing a 23% year-over-year increase and a 3% sequential increase [39] - Annual recurring revenue (ARR) grew 23% year-over-year to over $2.7 billion, with a net retention rate (NRR) improving to 115% [8][39] - Total calculated billings increased 18% year-over-year to $743 million, with unscheduled billings growing over 25% year-over-year [40] - Operating profit grew by 36%, leading to a 2 percentage point improvement in operating margin to nearly 22% [9][39] - Free cash flow margin reached a record of 22% [9] Business Line Data and Key Metrics Changes - The Zero Trust Branch solution saw significant customer interest, with 57% of customers being new logo customers [17] - Data protection solutions experienced over 40% year-over-year growth in net new annual contract value (ACV) [19] - The number of customers with over $1 million in ARR grew by 25% year-over-year [17][41] Market Data and Key Metrics Changes - Geographic revenue distribution: Americas accounted for 54%, EMEA for 30%, and APJ for 16% [39] - The company ended Q2 with 620 customers generating over $1 million in ARR and 3,291 customers generating over $100,000 in ARR [41] Company Strategy and Development Direction - The company is focusing on the "Zero Trust Everywhere" initiative, aiming to triple the number of enterprises adopting this model within 18 months [14][36] - The strategy includes targeted campaigns to educate customers on transitioning from legacy security stacks to Zero Trust solutions [13][36] - The company is leveraging the upcoming hardware refresh cycle to promote its solutions, emphasizing cost savings and improved security [13][104] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is ongoing scrutiny of large deals, the demand for cybersecurity solutions remains strong [104][110] - The company expects to achieve $3 billion or more in ARR by the end of the fiscal year, driven by strong demand and sales productivity [8][37] - Management highlighted the importance of partnerships with global system integrators (GSIs) in driving growth and closing deals [32][66] Other Important Information - The company is investing in AI solutions, with AI analytics driving strong growth and nearly doubling year-over-year [28][27] - The company has hired a new EVP of AI innovations to accelerate the development of AI solutions [29] Q&A Session Summary Question: How much of the business is coming from ZIA and Secure Web Gateway replacements versus broader platform products? - Management indicated that ZIA is often a starting point, but many customers are now adopting a broader platform that includes ZIA, ZPA, and CDx [52] Question: What proves that the go-to-market changes are making a difference? - Management cited the strength of the pipeline, double-digit growth in new ACV, and increased engagement with C-level executives as indicators of success [58] Question: Can you provide insight into the NRR improving to 115%? - Management noted that larger deals and upsells are contributing to the NRR, with expectations of continued growth in this area [75][76] Question: Can you elaborate on the 8-figure APAC government deal? - Management described it as a landmark deal focused on cybersecurity rather than ROI, with significant upsell opportunities in the government sector [81][83] Question: How is the company addressing the need for data classification? - Management explained that AI is being utilized for data classification, and the platform can work alongside other providers' classifications for policy enforcement [90][92] Question: What is the competitive landscape for Zero Trust solutions? - Management stated that competition primarily comes from legacy firewall vendors and that Zero Trust solutions eliminate the need for traditional security appliances [146]