Zscaler, Inc. (NASDAQ:ZS) remains in a phase of robust growth as innovation drives heightened platform adoption. The momentum was evident as it delivered solid fourth-quarter and fiscal 2026 results on September 3. The company’s growth story is increasingly expanding beyond its traditional seat-based business, with greater emphasis on data security and Security for AI.
On September 4, FBN Securities reiterated an Outperform rating on the stock and raised the price target to $190 from $175, impressed by the strong fourth-quarter results, which indicated improving underlying momentum. The growth momentum comes as the company moves beyond its traditional seat-based business with heightened focus on data security, Security for AI, and Zero Trust Everywhere.
While fourth-quarter revenue was up 25% year over year to $898.2 million, the 25% increase in ARR to $3.77 billion caught Wall Street’s attention, signaling growth in the recurring revenue base. Excluding Red Canary, which contributed $141 million of ARR, organic ARR grew 20% to $3.63 billion, while organic net-new ARR increased 17% year over year.
The company’s profitability picture is also showing signs of improvement as non-GAAP operating margin reached a record high of 24% in the fourth quarter. Full-year non-GAAP operating margin was also up to 23% from 22%. Meanwhile, Zscaler quarterly GAAP loss narrowed sharply, as net loss per diluted share fell to $0.02 from $0.11 a year earlier.
Zscaler expects the growth momentum experienced in the fourth quarter to continue in the first quarter of fiscal 2027. It expects revenue to grow by 19% year over year, ranging between $935 million and $939 million, with a non-GAAP gross margin of about 80%.
Slow ARR Growth Risks
Amid the underlying growth, Zscaler, Inc.’s guidance for ARR of between $4.396 billion and $4.426 billion for fiscal 2027 continues to elicit concerns. That is in part because it implies growth of only 16.6% to 17.4%, suggesting potential slowing in ARR growth.
Consequently, Zscaler could move from being viewed as a 25% growth cybersecurity company to a high-teens growth company. The market applying a lower multiple could result in the stock re-rating lower.
Additionally, the company is facing stiff competition from formidable competitors, including Palo Alto Networks and CrowdStrike. Given that customers prefer consolidated security, the company could lose major business if they opt to purchase all security capabilities from a single supplier.
Hedge Fund Positioning
Hedge fund interest in Zscaler, Inc. has been building. As of the second quarter, 52 hedge funds held stakes in the company, a slight improvement from 46 hedge funds as of the end of the first quarter according to the Insider Monkey database.
Meanwhile, short interest remains relatively modest. Approximately 3.85% of Zscaler’s shares, or 6.23 million shares, were sold short as of August 14. The relatively low short interest suggests that bearish positioning is not particularly elevated.
The Verdict
Zscaler, Inc.’s latest results reinforce the case that its growth engine remains healthy. Solid organic ARR growth, accelerating organic net-new ARR, record operating margins, and expanding opportunities in data security, AI security, and Zero Trust provide compelling reasons for investors to remain optimistic.
If revenue growth settles in the high teens, the company could face multiple compression as investors reassess its long-term growth profile. At the same time, intensifying competition from larger cybersecurity platforms could make it increasingly difficult to sustain outsized deal growth.
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