Zscaler (ZS) shares plummeted over 30% following the release of its fiscal Q3 results, marking a significant downturn for the cybersecurity firm, which has seen its stock price halved over the past year. Despite reporting a 25% year-over-year revenue increase to $850.5 million, the company’s weak guidance for Q4 and fiscal 2027, coupled with the departure of two key sales executives, raised red flags for investors.
The cautious outlook projects Q4 revenue growth of only 22%, slightly below analyst expectations, while annual recurring revenue (ARR) growth is forecasted at 16-17%, also underwhelming. Although Zscaler’s recent acquisition of Red Canary is performing well, contributing $136 million in ARR, the core business struggles to attract new customers, with only 9.5% growth expected excluding this acquisition. The company’s strong net dollar retention rate of 115% and robust AI solutions, particularly AI Protect, are positives but may not be enough to offset concerns about leadership changes and customer acquisition challenges.
For market professionals, the current valuation at a forward price-to-sales multiple of approximately 5 times could indicate a buying opportunity, but the ongoing issues with core growth and sales leadership suggest caution. Investors may want to monitor Zscaler’s performance closely before making any moves.
Source: fool.com