Zscaler Stock (ZS) Drops on Earnings; Price Target Trimmed

Zscaler Inc. (NASDAQ:ZS), a cloud security leader, saw its stock price decline despite reporting strong first-quarter fiscal 2026 earnings that surpassed analyst expectations. The market's reaction reflects concerns about future growth and guidance, leading several analysts to adjust their price targets.

In pre-market trading, Zscaler's stock traded 6.11% lower following the earnings release. This downturn occurred even as the company reported adjusted earnings per share (EPS) of $0.96, exceeding the consensus estimate of $0.86.

Revenue also impressed, reaching $788.1 million, a 26% year-over-year increase that outpaced the expected $773.26 million. Annual Recurring Revenue (ARR) grew by 26% to $3.2 billion, with deferred revenue rising by 32% to $2.35 billion.

Despite the robust financial performance, the market focused on the company's forward-looking statements and guidance.

Needham & Company lowered its price target on Zscaler from $350 to $310, while maintaining a “Buy” rating. The firm highlighted concerns regarding the company's ARR guidance. While Zscaler reported a 26% year-over-year growth in ARR, exceeding consensus by $22 million, the full-year ARR guidance was only raised by $21 million at the midpoint. This discrepancy raised questions about the sustainability of the company's growth trajectory.

Adding to the uncertainty, Zscaler did not provide specific figures for the performance of its Red Canary acquisition, even though it was previously indicated to be exceeding internal expectations. The lack of transparency surrounding this acquisition's contribution has further fueled concerns among markets regarding future performance.

Other analyst firms followed suit, adjusting their price targets in response to the earnings report. Stifel reduced its price target from $330 to $320, maintaining a “Buy” rating, while Bank of America Securities lowered its price target from $355 to $335, also maintaining a “Buy” rating. These adjustments, while still positive, reflect a more cautious outlook on Zscaler's near-term growth potential.

Year-to-date, Zscaler's stock has gained nearly 60% before the extended hours action, yet the post-earnings decline suggests that markets had priced in even stronger performance, and the company's guidance may not have fully met these lofty expectations. The lack of detailed information regarding the Red Canary acquisition's contribution, coupled with the modest increase in ARR guidance, has contributed to a more tempered sentiment on the street.