Why Zscaler Stock Plummeted This Week
Key Points
Zscaler's fiscal Q3 results beat the average Wall Street analyst estimates, and the company raised revenue and ARR targets for fiscal 2026.
Management guided for growth for revenue and ARR to decelerate to between 16% and 17% next fiscal year.
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Zscaler (NASDAQ: ZS) stock crashed this week after the company published results for the third quarter of its 2026 fiscal year -- which ended April 30. The cybersecurity specialist's share price moved 18.3% lower compared to where it stood at the end of the previous week's trading. Meanwhile, the S&P 500 rose 1.8%, and the Nasdaq Composite was up 2.6%.
Zscaler released its fiscal Q3 report on May 26, and the stock got hit with big sell-offs despite sales and earnings for the period coming in ahead of the average Wall Street analyst estimates. The company's share price is now down roughly 49% over the last year.
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Zscaler stock got crushed despite solid Q3 results
Zscaler recorded a non-GAAP (adjusted) profit of $1.08 per share on sales of $850.48 million in fiscal Q3. Sales were up 25.4% year over year and beat the average analyst estimate by $14.82 million, and adjusted earnings per share topped the average forecast by $0.07. With the company's fiscal Q3 report, management also increased its full-year sales and annual recurring revenue (ARR) targets for fiscal 2026 -- but there was a catch.
Zscaler expects some significant growth deceleration
Zscaler has raised its ARR target for fiscal 2026 to between $3.740 billion and $3.749 billion -- up from previous guidance for ARR between $3.73 billion and $3.745 billion. Meanwhile, revenue is now projected to come in between $3.3295 billion and $3.3325 billion -- up from its previous target for sales between $3.309 billion and $3.322 billion.
ARR is projected to grow roughly 24% in fiscal 2026, and sales are now projected to be up between 24.6% and 24.7%. On the other hand, management said that it expected ARR and revenue to grow between 16% and 17% in fiscal 2027. While the company anticipates some substantial deceleration for growth, the stock could be worth a look for risk-tolerant investors following the recent pullback.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zscaler. The Motley Fool has a disclosure policy.
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