Zscaler
Zscaler runs a cloud-based zero trust network and internet security platform (SASE/SSE).
On the record
Checkpoint: Q4 FY2026 earnings call, first guidance test after May 2026 miss and sales leadership turnover
The call
Zscaler still leads on scale and certifications, but Microsoft's bundled AI security is now visibly eating into its growth rate, not just its market share story.
Zscaler runs servers around the world that protect company networks and employees working remotely by checking internet traffic before it reaches company systems. The company built a strong position by handling hundreds of billions of transactions daily and earning government certifications that take years to get, which makes customers stick around. But Microsoft is now offering similar protection as part of its Office 365 bundle, which is already cutting into Zscaler's growth (dropping from 25 percent yearly growth to 16 or 17 percent), and two rival security firms just reached the same top rating that Zscaler held alone. The question is whether Zscaler can keep its government and big business customers loyal enough to slow down the slowdown, or whether the growth keeps falling faster.
Why
01
AI pressure: Microsoft Security Copilot / Global Secure Access (E5). Microsoft folds AI-driven security into E5 licenses, letting IT buyers skip a separate SSE vendor entirely. Could AI do the core job? Unlikely.
02
Bigger players: Microsoft (Global Secure Access via E5 bundling). E5 bundling is already cutting into Zscaler new-logo growth, with FY27 guidance halving to 16-17% from 25%. Could a giant copy it? Probably.
03
What protects it. 160+ global data centers processing 500B+ daily transactions, FedRAMP-High certs, and deep network-layer lock-in at renewal.
What would change this call
Zscaler's FY27 quarterly growth rate versus the 16-17% guidance during Q4 FY26 and Q1 FY27 earnings. Shows whether Microsoft E5 bundling pressure is stabilizing or worsening deceleration.
Gross retention rate disclosed in Zscaler's next two quarterly reports, especially mid-market segment. Would confirm or refute actual customer loss versus just slower new sales.
Whether Zscaler names a permanent sales leadership replacement and new-logo growth trend by Q1 FY27. Tests if turnover was the real cause of slowdown or a cover for competitive loss.
Gross retention rate disclosed in Zscaler's next two quarterly reports, especially mid-market segment. Would confirm or refute actual customer loss versus just slower new sales.
Whether Zscaler names a permanent sales leadership replacement and new-logo growth trend by Q1 FY27. Tests if turnover was the real cause of slowdown or a cover for competitive loss.
Key numbers
- Q3 FY2026 revenue $850.5M, up 25.4% YoY
- FY27 growth guidance cut to ~16-17%
- Stock down 56% from 52-week high to ~$148
Named risks
- Microsoft E5 bundling could erode standalone SSE demand at near-zero marginal cost.
- FY27 growth guidance deceleration to 16-17% from prior 25% signals slowing momentum.
- Sales leadership turnover and tempered new-logo growth disclosed in Q3 FY2026.
- Active securities class-action investigations tied to May 27, 2026 guidance-driven stock drop.
- Platform reliability incidents (ZIdentity Portal, CASB integration issues) cited by competitors as reputational risk.
Rivals, as read in July 2026
| Rival | Direction | Evidence |
|---|---|---|
| Microsoft | gaining on | Global Secure Access via E5 bundling linked to growth deceleration to 16-17% guided for FY27, 2026-07 |
| Palo Alto Networks | contesting | Co-equal Leader with Zscaler in 2025 Gartner SSE Magic Quadrant |
| Netskope | contesting | Ranked number one for Completeness of Vision in 2025 Gartner SSE Magic Quadrant, Leader status |
| Cloudflare | gaining on | Challenger status in 2025 Gartner SSE MQ, rising performance-focused competitive content in 2026 |
| dope.security | gaining on | Positions on-device architecture against Zscaler's cloud-backhaul model in 2026 comparisons |
Questions people ask
- Is Zscaler profitable in 2026?
- Zscaler posted a net loss of $41.5M on $2.673B revenue in FY2025 (ended July 31, 2025), up 23.3% YoY. It remains investing heavily in growth and AI security products rather than optimizing for GAAP profitability as of its FY2025 10-K filed 2025-09-11.
- Is Zscaler losing to Microsoft?
- Microsoft's Global Secure Access, bundled into E5 licenses at near-zero marginal cost, is cited as a driver behind Zscaler's growth deceleration from 25% to a guided 16-17% for FY27, disclosed around 2026-07-06, alongside sales leadership turnover.
- Who are Zscaler's biggest competitors?
- In the 2025 Gartner SSE Magic Quadrant, Zscaler shares Leader status with Palo Alto Networks and Netskope, while Cloudflare sits as a Challenger. Cisco, Fortinet, and Cato Networks also compete in SASE, per a 2026-06-03 industry tracker.
- Is Zscaler stock down in 2026?
- Yes. Zscaler's stock fell from a 52-week high of $336.99 to roughly $148-150 by July 20-21, 2026, cutting market cap to about $24.0-24.25 billion after weaker-than-expected guidance disclosed May 27, 2026.
- Could AI replace Zscaler's security products?
- Zscaler is positioning AI as a demand driver, not a threat: it launched AI Protect in January 2026, tracking 2,900+ AI apps, and added AI Broker and AI Access Graph products at Zenith Live on 2026-07-06 to secure agentic AI traffic rather than being displaced by it.
- What is Zscaler's ARR and how fast is it growing?
- Zscaler's annual recurring revenue reached $3.5 billion in Q3 FY2026 (quarter ended April 30, 2026), up 25% YoY, or 21% excluding the Red Canary acquisition contribution, per its 2026-05-26 earnings call.
Timeline
- 2026-07-06Zenith Live 2026: launched 16 AI Protect capabilities plus AI Broker and AI Access Graph
- 2026-05-27Stock dropped sharply after weaker guidance and disclosed sales leadership disruption
- 2026-05-26Q3 FY2026 earnings call: ARR hits $3.5B, up 25% YoY
- 2026-05-21Announced intent to acquire identity firm Symmetry Systems
- 2026-02-05Closed acquisition of browser-security startup SquareX
- 2026-01Launched Zscaler AI Protect platform, tracking 2,900+ AI apps
- 2025-11Acquired AI-security startup SplxAI
- 2025-09-11FY2025 10-K filed: revenue $2.673B, up 23.3% YoY, net loss $41.5M
- 2025-07Issued $1.725B in 0.0% convertible senior notes due 2028
- 2025-05-17Announced acquisition of Red Canary (MDR) for $675M
Revision history
21 July 2026
First assessed. Defensible for now. The text above is fixed as of this date and is not edited afterwards.
In the same band
Sources
- Zscaler (ZS) FY2025 10-K (2025-09-11)
- KeyCorp Analyst (2026-07-16)
- GuruFocus Q3 2026 Earnings Call Highlights (2026-05-26)
- Zscaler Earnings Dates & Call Summary (2026-07-06)
- Zscaler (ZS) Number of Employees 2015-2025 (2026-07-15)
- CRN: Zscaler Aims to Boost Browser Security with Acquisition of SquareX (2026)
- Zscaler AI Protect Raises the Bar for AI Security (2026-06-24)
- Zscaler Acquires SquareX (2026-05-03)
- Richmond Advisory Group: Zscaler's Strategic Pivot 2025-2026 (2026-02-18)
- Zscaler Announces Intent to Acquire Symmetry Systems (2026-05-20)
- How Zscaler Secures the Agentic AI Era (2026-07-06)
- Ciphers Security: Best ZTNA Platforms 2026 (2026-06-03)