Why Zscaler Stock Slid on Wendesday

Key Points

• Zscaler released its final set of quarterly results for fiscal 2025.

• These showed solid improvements in numerous fundamentals, but investors were clearly hoping for better.

• 10 stocks we like better than Zscaler ›

A solid fourth-quarter earnings release wasn't good enough for a demanding stock market in Zscaler's (NASDAQ: ZS) case Wednesday. The cybersecurity company saw its share price erode by 1.4% as the market collectively expressed mild discontent with the results. That fall was in contrast to the S&P 500's (SNPINDEX: ^GSPC) 0.5% improvement on the day.

Double-digit rises in key fundamentals

In the final frame of its fiscal 2025, which Zscaler revealed after market hours Tuesday, the company managed to grow its revenue by 21% year over year to slightly over $719 million. That was on the back of a similar (22%) improvement in annual recurring revenue (ARR), which at that point amounted to nearly $3.02 billion.

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Non-GAAP (generally accepted accounting principles) adjusted net income also rose at a double-digit rate, advancing by 27% to nearly $147 million ($0.89 per share).

With those figures, Zscaler handily beat the average analyst estimates. The consensus for revenue was slightly under $707 million, while that for per-share, adjusted profitability was $0.80.

The company attributed the improvements to increasing concern about cybersecurity threats, a trend that organically benefits its business. It also benefited from increased take-up of cybersecurity solutions as clients scale up with artificial intelligence (AI).

The environment is very fertile for companies in this segment, especially if they embrace AI enthusiastically. Since Zscaler ticks both boxes, investors might have had slightly overinflated expectations for the company's fourth quarter.

Advancing ARR

Zscaler's guidance also came in above the average pundit projections. For the entirety of its current (2026) fiscal year, it's anticipating that ARR will land at a range of almost $3.68 billion to almost $3.70 billion. Under that, revenue should come in at just under $3.27 billion to a bit over $3.28 billion. Adjusted net income is forecast at $3.64 to $3.68 per share for the year.

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Eric Volkman 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.