Zscaler's Q3 2026 Report Tests High Growth Valuation
0h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
2026report
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Zscaler Inc. will report its fiscal third-quarter 2026 financial results on May 25, 2026, following the market close. Reporting by SeekingAlpha indicates the report follows a quarter of intense scrutiny on enterprise software valuations. The cloud security leader is expected to post revenue of $1.68 billion for the period, representing projected year-over-year growth of 33%. Investors will focus on the company's ability to sustain premium growth against a backdrop of rising competitive pressure and macroeconomic caution in IT spending.
This quarterly report arrives at a pivotal juncture for the Zero Trust security architecture market. The last major catalyst for Zscaler shares was its Q2 2026 earnings beat on February 24, 2026, which propelled the stock 15% in a single session. That surge was driven by a 300 basis point expansion in operating margin and a 40% increase in calculated billings.
The current macro backdrop is defined by the Federal Reserve's benchmark rate holding at 4.75%, maintaining pressure on growth stock valuations. The Nasdaq-100 index has gained 8% year-to-date, underperforming broader equity indices as higher rates compress future earnings multiples.
The catalyst for heightened volatility now is a shift in competitive dynamics. Legacy network hardware vendors like Cisco and Palo Alto Networks have aggressively bundled zero-trust features into their core platforms over the last 18 months. This quarter's results will test whether Zscaler's pure-play, cloud-native model can continue to command its historical growth premium against these bundled offerings. The report will serve as a key indicator for enterprise security budget allocation trends.
Analyst consensus, aggregated from major brokerages, centers on four key metrics for Zscaler's Q3 2026. Revenue is expected to reach $1.68 billion, up from $1.26 billion in the year-ago quarter. Non-GAAP earnings per share are forecast at $1.42, compared to $0.98 in Q3 2025. Calculated billings, a key indicator of future revenue, are projected to hit $2.05 billion, signaling a 32% growth rate.
The critical margin metric is operating income. The company has guided for a non-GAAP operating margin of 24%, a key expansion from the 21% margin reported in Q3 2025.
| Metric | Q3 2025 (Actual) | Q3 2026 (Estimate) | Change |
|---|---|---|---|
| Revenue | $1.26B | $1.68B | +33% |
| Non-GAAP EPS | $0.98 | $1.42 | +45% |
| Operating Margin | 21% | 24% | +300 bps |
Peer performance provides context. The ETFMG Prime Cyber Security ETF (HACK) has returned 12% over the last 12 months, while Zscaler shares have appreciated 28% over the same period, demonstrating its market leadership premium. However, this outperformance has resulted in a forward price-to-sales multiple of 12.5x, nearly double the 6.7x average for the software security sector.
A revenue beat above $1.70 billion would likely trigger a re-rating of the entire cloud security cohort. Direct beneficiaries would include CrowdStrike and Cloudflare, which trade on similar secular growth narratives. A 5% move in Zscaler could catalyze a 2-3% move in these peers. Conversely, legacy vendors like Fortinet and Check Point Software could see relative underperformance, as strong pure-play results validate the shift away from hardware-centric security.
A significant risk is that Zscaler meets its targets but fails to raise full-year guidance, indicating a potential growth plateau. The company's high valuation leaves little room for deceleration, and any hint of slowing billings growth could pressure the stock disproportionately. Market participants have priced in perfection, making the stock vulnerable to a guidance-driven sell-off.
Positioning data from options markets shows elevated demand for out-of-the-money calls, indicating speculative bets on a large positive surprise. Institutional flow data suggests hedge funds have been net sellers over the past month, taking profits ahead of the earnings event, while long-only funds maintain core positions. This creates a setup for high volatility as positioning unwinds post-announcement.
The immediate post-earnings conference call will focus on guidance for Q4 2026 and the full fiscal year 2027. Management's commentary on competitive win rates against bundled offerings from Palo Alto Networks' Prisma Access will be critical. The next major industry catalyst is the RSA Conference in early June 2026, where product roadmaps and competitive messaging will be solidified.
For technical levels, chart watchers identify $245 as a key support level, representing the 100-day moving average. A sustained break below this level on weak guidance would target the $220 region. Upside resistance sits near the 52-week high of $295; a decisive breach above this level would require a significant guidance raise.
Investors will watch for the Fed's June 18, 2026, policy decision. Any shift toward a more dovish stance could disproportionately benefit high-multiple growth stocks like Zscaler by lowering discount rates on future cash flows. The company's next major earnings report, for Q4 2026, is scheduled for late August.
Zscaler trades at a significant premium. Its forward price-to-sales ratio of 12.5x exceeds CrowdStrike's 11x and Snowflake's 9x. This premium is justified by its consistent 30%+ growth rate and leading market share in the Secure Service Edge segment, but it also increases sensitivity to any growth deceleration. Investors pay for its pure-play status in a consolidating market.
The primary threat is market consolidation, where clients choose single-vendor platforms from larger rivals like Microsoft or Palo Alto Networks over best-of-breed point solutions. These competitors bundle zero-trust network access with other security and productivity tools, potentially pressuring Zscaler's standalone pricing power and sales cycles, especially among cost-conscious enterprises.
Calculated billings represent total revenue plus the change in deferred revenue over a period. It is a crucial metric for subscription software companies as it reflects new business contracted during the quarter, providing a forward-looking view of revenue health. A decline in billings growth often precedes a slowdown in reported revenue by two to three quarters.
Zscaler's earnings will test whether premium growth valuations can withstand intensifying competition and a higher-rate environment.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
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