Zscaler's stock fell more than 30% on Wednesday, marking its worst trading day ever, primarily due to its underwhelming guidance for fiscal year 2027, which projected annual recurring revenue (ARR) growth of only 16% to 17%. This forecast fell short of analysts' expectations, contributing to a negative market reaction.
The company anticipates revenue of $875 million to $878 million for the upcoming quarter, slightly below the FactSet estimate of $878.6 million. Zscaler also projected an ARR of $3.74 billion to $3.75 billion for FY2026, indicating a year-over-year growth of approximately 24%.
The company faced challenges during the quarter, including the departure of two sales leaders, and CFO Kevin Rubin mentioned a cautious approach to guidance amid these transitions. Additionally, Zscaler warned that rising capital expenditures, driven by a memory crunch and increasing costs, would increase as a percentage of revenues by 200 basis points in FY2027.
CEO Jay Chaudhry emphasized the growing need for cybersecurity solutions, especially with the rise of AI-driven threats, while also noting the company's involvement in Project Glasswing with Anthropic to enhance cybersecurity measures.
Despite the disappointing outlook, Zscaler reported adjusted earnings of $1.08 per share on $850 million in revenue, surpassing analyst expectations of $1.01 per share on $835 million in revenue.
Following the earnings report, Evercore ISI downgraded Zscaler's shares from outperform to in line and reduced its price target, citing the weak FY2027 outlook and leadership changes as factors that could keep the stock range-bound in the near term