Zscaler Q3 strong, outlook hit by component costs, sales turnover

Zscaler reported a better-than-expected third quarter, but the outlook was mixed due to higher memory, storage and processor costs and turnover in sales.

The company reported a third quarter net loss of $13.9 million, or 9 cents a share, on revenue of $850.5 million, up 25% from a year ago. Growth was fueled by the acquisition of Red Canary. Annual recurring revenue in the quarter was up 25% with Red Canary and 21% without. Non-GAAP earnings were $1.08 a share.

Jay Chaudhry, CEO of Zscaler, said the company’s Zero Trust architecture is resonating amid AI workloads, frontier models and compromised AI agents. “Our results demonstrate that our approach is resonating as we attract new customers and expand with our existing customers,” he said.

Zscaler’s results are setting the table for Palo Alto Networks and CrowdStrike earnings next week.

Zscaler’s third quarter non-GAAP earnings beat estimates by 7 cents per share.

As for the outlook, the company projected fourth quarter revenue of $875 million to $878 million, up 22% from a year ago. Non-GAAP earnings will be $1.08 a share to $1.09 a share. For fiscal 2026, Zscaler projected revenue of $3.3295 billion to $3.3325 billion with non-GAAP earnings of $4.10 a share to $4.11 a share.

Wall Street was looking for fourth quarter non-GAAP earnings of $1.03 a share on revenue of $878.66 million. The fiscal 2026 outlook was better than expected.

In a shareholder letter, Zscaler outlined the mixed outlook and how increasing memory, storage and processor prices hit the company.

“We purchase equipment for our data center and Zero Trust Branch appliances. To mitigate costs, we put through a price increase on our branch appliance early this calendar year, which we expect to flow through in the next several months. We are also being opportunistic and taking advantage of delivery of data center equipment where we can get it, to lock in today’s prices ahead of potential increases in the future. This is pulling forward some of the investments we expected to make in fiscal 2027 into Q4. As a result, we expect higher capex in Q4, taking fiscal 2026 capex to the high single-digits as a percent of revenue, up from our prior expectation of mid-single-digits. Looking ahead to fiscal 2027, based on higher prices we see in the market today, we expect capex as a percentage of revenue to increase up to 200 basis points compared to fiscal 2026 levels.”

Zscaler is also dealing with sales turnover. The company said:

“At the end of the third quarter, two sales leaders departed the company. We have already appointed a replacement for one of these leaders, and we are in the late stages of hiring a leader for the other role. However, we are taking a prudent approach to our guidance during the transition.”