Live: Will Zscaler Crush Q3 Earnings Tonight and Continue Its May Rally?

That wraps up our initial coverage of Zscaler’s Q3 results. Thank you for stopping by!

Zscaler (NASDAQ:ZS) shares are down roughly 17% after-hours despite a 7.11% EPS beat and a raised full-year outlook.

The market is laser-focused on one line: free cash flow margin guidance slashed to 22.8%-23.3% from 26.5%-27%, due to capex funding AI-era infrastructure.

Historically, this magnitude of drop is within range. Q4 2024 fell 18.67% on a 27.54% beat, and Q2 FY26 dropped 12.17% before recovering +11.61% in five sessions.

With shares up 27.84% into the report, the bar was steep. The reaction appears in line with expectations and the FCF reset, though beats have averaged +1.86% a week later. Whether capex pays off in AI security demand defines the next leg.

Management lifted Zscaler’s FY26 EPS to $4.10-$4.11 from prior $3.99-$4.02, comfortably above the $4.02 Street bar. Operating income guidance jumped to $755M-$757M, implying 30% growth.

However, the bombshell from the earnings results was that free cash flow margin guidance was slashed to 22.8%-23.3% from 26.5%-27%, citing high single-digit capex intensity to support AI workloads. That explains the 17% after-hours drop despite the beat.

Q4 revenue guidance of $875M-$878M sits just shy of the $878.7M consensus. The key assumption is that sustained AI-security demand will fund the capex bet, with Anthropic and OpenAI partnerships anchoring the long-term thesis.

Zscaler leaned heavily into the AI security narrative following its strong Q3 earnings beat, arguing that the rise of frontier AI models and autonomous AI agents is increasing the need for Zero Trust cybersecurity architecture.

CEO Jay Chaudhry said the company’s platform is “ideally positioned as the cybersecurity platform for the AI era,” highlighting how Zscaler’s architecture hides applications from attackers and prevents lateral movement across enterprise systems.

Meanwhile, CFO Remo Canessa emphasized the company’s improving profitability profile. Zscaler reported 25% ARR growth and a record 23% non-GAAP operating margin during the quarter, even as investors closely watched the impact of the normalization of the Red Canary acquisition.

Zscaler just reported earnings, with shares initially dropping 11% following the report. Here are the key numbers:

• Revenue: $850.5 million vs. $835.7 million expected
• Adjusted EPS: $1.08 vs. $1.01 expected
• ARR: $3.53 billion, up 25% YoY
• Non-GAAP operating margin: 23%, record high
• Free cash flow: $136 million, up 14% YoY

Guidance:

• Q4 Revenue: $875 million-$878 million vs. $878.7 million expected
• Q4 Adjusted EPS: $1.08-$1.09 vs. $1.03 expected
• FY26 Revenue: $3.3295 billion-$3.3325 billion vs. $3.32 billion expected
• FY26 Adjusted EPS: $4.10-$4.11 vs. $4.02 expected

Quick read:

Zscaler delivered another clean beat with strong ARR growth, record margins, and raised full-year guidance despite tougher comparisons tied to the Red Canary acquisition.

Management also leaned heavily into AI security demand, highlighting partnerships with OpenAI and Anthropic as the company positions itself as a core cybersecurity platform for the AI era.

Beyond tonight’s $1.01 consensus EPS estimates, Wall Street is laser-focused on Q4 guidance and an FY26 raise.

Analysts model a $223.39 average price target with 39 buy ratings vs. 9 holds, implying tolerance for a beat-and-raise but little patience for a reiteration.

Management’s pattern is conservative sandbagging, so an unchanged FY26 ARR band of $3.730B–$3.745B would read as bearish. The bullish bar: Q4 revenue guide pushing toward $850M, FY26 EPS lifted above $4.02, and organic ARR re-accelerating past 21%.

Investors also want clarity on billings, FCF margin, and Red Canary integration costs. With shares at $190.70, guidance, more than the beat itself, will dictate the after-hours move.

With Zscaler (NASDAQ:ZS) trading at $190.19 into tonight’s call, here are some top questions analysts will likely have for the company:

Top 5 Analyst Questions

• Organic ARR growth trajectory ex-Red Canary versus the 21% Q2 baseline.
• Zscaler AI Protect monetization and token-based pricing share of new ACV (last reported just over 25%).
• Z-Flex TCV momentum after Q2’s $290 million.
• Path to $5B ARR and Zero Trust Everywhere customer count beyond 550.
• FedRAMP High pipeline and $1M+ deal cadence.

Key Topics & Buzzwords

• Listen for: “Rule-of-62,” “agentic AI,” “MCP requests,” “calculated billings,” and updated free cash flow margin against the 26.5%-27% FY26 target.

Red Flags

• Net new ARR decelerating, Red Canary churn commentary, widening GAAP loss, or sales productivity slippage. With 8 insider sales and net selling direction, hedged language on H2 seasonality would sting.

Historical Earnings Day Reactions: The Beat-But-Sell Pattern

Across 11 past earnings releases, Zscaler has averaged a -3.04% day-of move, with beats specifically resulting in an average -4.91% move.

Surprise magnitude has shown no predictive power: the largest beat (Q4 2024, 27.54%) triggered a -18.67% drop, while Q3 2025 delivered a +9.79% gain on a smaller beat.

Initial reactions frequently reverse. Beats average +1.86% one week later, and Q2 2026 fell -12.17% before recovering +11.61% within five sessions.

With shares already up 27.84% in a month, expectations are high heading into tonight’s results.

Why Guidance Will Drive the Reaction

Zscaler (NASDAQ:ZS) has a clear sandbagging pattern: revenue beats of 1.6%-2.1% and EPS beats of 10.8%-12.6% over the last four quarters. The beat is largely priced in. Guidance is what moves the stock.

Management’s standing Q3 framework calls for revenue of $834M-$836M and non-GAAP EPS of $1.00-$1.01, with full-year ARR at $3.730B–$3.745B.

Bullish scenario: FY26 ARR lifted above $3.75B, Q4 revenue guide above ~$870M, and operating margin guidance north of 22%.

Bearish scenario: A merely reiterated outlook, organic ARR growth slipping below 21%, or margin compression from Red Canary integration. After Q1, an in-line guide sank shares -13.03% despite a beat. Investors want billings, organic ARR, and FCF margin lifted, not held.

Bull Case

• Zscaler (NASDAQ:ZS) has posted four straight double-digit EPS beats (10.77%-12.56% surprises), with Q2 ARR hitting $3.36B, up 25%.
• CEO Jay Chaudhry cites nearly 1 trillion AI transactions processed in 2025 and 2x-3x ARR lift on Zero Trust Everywhere adoption.
• RPO reached $6.1B, up 31%, signaling forward visibility.
• Shares already rallied 27.84% over the past month.

Bear Case

• Organic ARR growth excluding Red Canary was just 21%, well below the headline.
• Q3 revenue guide of 23% growth implies deceleration.
• Every recent beat triggered a same-day decline, averaging -4.91%.
• Insiders sold across the C-suite in March with zero purchases, and GAAP net income remains -$34.31M.

Zscaler has now beaten estimates in eight straight quarters, but tonight’s report carries more weight than a standard beat-or-raise setup.

Investors are now focused on whether the company can sustain strong organic ARR growth, expand margins, and continue proving that its platform consolidation strategy is working at scale.

The bigger question is whether management can keep rebuilding confidence after the stock’s sharp recovery rally in May. Another guidance increase from CEO Jay Chaudhry would reinforce the idea that enterprise security spending remains healthy despite macro concerns.