TLDR
- ZS slides 16% after hours despite strong Q3 revenue and ARR growth.
- Zscaler raises guidance, but weaker cash flow outlook pressures shares.
- ZS stock drops as capex concerns overshadow record Q3 profitability.
- Zscaler posts 25% revenue growth, yet after-hours selling intensifies.
- ZS falls below $155 after Q3 results spark concern over cash flow margin.
Zscaler (ZS) shares fell sharply after hours, even as the cloud security company reported strong third-quarter revenue growth. ZS closed at $184.60, up 1.22%, before dropping to $154.29 after the bell. The 16.42% slide erased the regular-session gain and pulled the stock far below the $190 area.
Zscaler Reports Strong Q3 Revenue Growth
Zscaler said revenue rose 25% year over year to $850.5 million in fiscal third-quarter 2026. The company also reported annual recurring revenue of $3.525 billion, up 25% from the prior year. Excluding Red Canary, ARR grew 21% to $3.398 billion.
The cybersecurity firm added $166 million in net new ARR during the quarter. Red Canary contributed $127 million to total ARR after its acquisition. Excluding that deal, net new ARR rose 14%, which gave the quarter a more balanced growth picture.
Zscaler also posted stronger adjusted profitability during the period. Non-GAAP operating income reached $195.8 million, equal to 23% of revenue. That compared with $146.7 million, or 22% of revenue, in the same quarter last year.
Losses Widen As Cash Flow Margin Falls
The company still reported a GAAP operating loss of $29.6 million. That compared with a GAAP operating loss of $25.4 million one year earlier. Meanwhile, GAAP net loss widened to $13.9 million from $4.1 million.
Zscaler posted a GAAP net loss of $0.09 per diluted share. In contrast, non-GAAP earnings reached $1.08 per diluted share during the quarter. That adjusted figure improved from $0.84 per share in the prior-year period.
Cash flow trends also drew attention after the report. Operating cash flow fell to $198 million, equal to 23% of revenue. Free cash flow rose to $136 million, but its margin slipped to 16%.
Guidance Improves, But Capex Weighs On Outlook
Zscaler issued fourth-quarter revenue guidance of $875 million to $878 million. That forecast implies growth of about 22% from the prior year. The company also expects non-GAAP operating income of $206 million to $208 million.
For fiscal 2026, Zscaler raised its revenue outlook to about $3.33 billion. The company also lifted its adjusted earnings forecast to $4.10 to $4.11 per share. Additionally, it raised ARR guidance to a range of $3.740 billion to $3.749 billion. The company cut its free cash flow margin outlook. Zscaler now expects a margin of 22.8% to 23.3%, down from 26.5% to 27%. The company linked the change to higher capital spending in the high single digits.
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