Source Report
Research Question
Using publicly available filings, earnings transcripts, and analyst reports, compile Zscaler's financial performance data including TTM revenue (~$2.83B), ARR trajectory toward and beyond $3.2B, quarterly revenue growth rates, gross margins, operating margins, free cash flow generation, and net revenue retention rates. Identify the key drivers of the path to GAAP profitability and any publicly estimated forward guidance. Present findings in data tables with sources.
Zscaler's TTM Revenue Reached $2.833 Billion as of October 31, 2025, Aligning with Aggregated Quarterly Data Through Q1 FY2026, Powered by 23-26% YoY Growth from AI-Driven Platform Adoption and Customer Expansion.
Zscaler's revenue growth mechanism relies on its Zero Trust Exchange platform, where ~98% subscription revenue from channel partners (84%) fuels recurring sales via upsells in AI Security, Zero Trust Everywhere, and Data Security—evidenced by $195.8 million in H1 FY2026 follow-on sales and doubled $1M+ deals in Americas Q2 FY2026. This data moat from processing 500 billion daily transactions enables non-seat-based metered usage (>25% of Q2 new ACV, >100% YoY ARR growth), driving scale without proportional cost increases, as gross margins hold steady at 77% GAAP despite acquisitions like Red Canary.[1][2]
| Metric | Value (USD) | Period | YoY Growth | Source[3][1] |
|---|---|---|---|---|
| TTM Revenue | $2.833B | Ended Oct 31, 2025 (Q1 FY2026) | 23% | Macrotrends / 10-Q |
| FY2025 Revenue | $2.673B | Full FY2025 | 23% | Q4 FY25 Release[4] |
What this means for competitors: Traditional on-prem vendors cannot match Zscaler's cloud-native elasticity; entrants need proprietary data flywheels (e.g., AI transaction processing) to sustain 20%+ growth at $3B scale, as customer base grew 15% YoY to drive H1 revenue.[1]
ARR Surged to $3.359 Billion by Q2 FY2026 End, Crossing $3.2 Billion in Q1, on Track for 24% FY2026 Growth to $3.73-3.745 Billion via Net New ARR Acceleration and Strategic Acquisitions.
Zscaler's ARR mechanism converts large deals (e.g., Z-Flex bookings $290M+ Q2, $650M TCV since launch) and enterprise expansions (550+ Zero Trust Everywhere customers, +320% YoY) into annualized value, with net new ARR of $156M in Q2 (+19% YoY; organic +7% ex-Red Canary $114M ARR). Acquisitions bolt on ~$114-130M ARR (Red Canary FY26 guide up), while organic H1 net new ARR grew 10% YoY from 1%, signaling macro recovery and AI upsell momentum.[5][2]
| Quarter | Revenue (USD M) | YoY Growth | ARR (USD B) | YoY Growth | Net New ARR (USD M) | Source[2] |
|---|---|---|---|---|---|---|
| Q4 FY25 | 719 | 21% | 3.015 | 22% | N/A | Q4 Release[4] |
| Q1 FY26 | 788 | 26% | 3.204 | 26% | 276 | Q1 Release / Shareholder Letter[6] |
| Q2 FY26 | 816 | 26% | 3.359 | 25% | 156 (organic 139) | Shareholder Letter / 10-Q[2] |
| FY26 Guide | 3.309-3.322B | 24% | 3.730-3.745B | 24% | N/A | Q2 Release[5] |
What this means for entrants: $3B+ ARR scale requires "land-and-expand" at enterprise level (728 $1M+ customers +21% YoY); pure-play startups face churn risks without Zscaler's 160+ data centers and 99.999% uptime for retention.[2]
Gross Margins Stabilized at 77% GAAP / 80% Non-GAAP Through H1 FY2026, Reflecting Efficient Cloud Scaling Despite 30% Cost of Revenue Rise from Bandwidth and Acquisitions.
The mechanism: Fixed data center costs dilute over 500B daily transactions and AI workloads, offset by amortization/stock comp exclusions; non-GAAP holds as efficiencies from metered usage counter acquisition intangibles ($193M post-Red Canary/SPLX). Stable despite 29-34% op ex growth (S&M/R&D), as revenue scales faster.[1]
| Period | GAAP Gross Margin | Non-GAAP Gross Margin | GAAP Op Margin | Non-GAAP Op Margin | Source |
|---|---|---|---|---|---|
| Q2 FY26 | 77% | 80% | (6)% | 22% | 10-Q / Release[1] |
| H1 FY26 | 77% | 80% | (5)% | 22% | 10-Q[1] |
| FY25 | ~77% | ~80% | (5)% | 22% | Q4 Release[4] |
| FY26 Guide | ~80% | ~80% | N/A | 22-23% | Q2 Letter[2] |
What this means to compete: Incumbents adding AI atop legacy stacks face margin dilution (op ex >80% revenue); Zscaler's 80%+ non-GAAP requires born-cloud architecture for data center leverage.[1]
Free Cash Flow Exploded to $582 Million (36% Margin) in H1 FY2026, Up 34% YoY, from $727 Million (27%) FY2025, Fueling Acquisitions Without Dilution.
Mechanism: Op cash flow ($652M H1, +28% YoY) minus low-single-digit capex (7% YoY decline to $70M) generates FCF runway for $692M buys (Red Canary/SPLX), with $3.5B cash hoard post-$1.7B notes. Rule-of-62 YTD (growth + FCF margin) beats Rule-of-40.[1][5]
| Period | Op Cash Flow (USD M) | Capex (USD M) | FCF (USD M) | FCF Margin | Source |
|---|---|---|---|---|---|
| Q2 FY26 | 204 | 35 | 169 | 21% | 10-Q / Release[1] |
| H1 FY26 | 652 | 70 | 582 | 36% | 10-Q[1] |
| FY25 | N/A | N/A | 727 | 27% | Q4 Release[4] |
| Q3 FY26 Guide | N/A | N/A | N/A | 26.5-27% | Q2 Letter[2] |
What this means for competitors: FCF positivity at 3B scale funds M&A moats (e.g., SquareX browser security); capex-light SaaS without it risks dilution via equity raises.[1]
Net Revenue Retention Not Explicitly Disclosed in Latest Filings/Transcripts, but Inferred Strong from 10% H1 Organic Net New ARR Growth and 18-21% Large Customer Expansion; Historically Robust per Analyst Notes.
NRR drives ARR via renewals/upsells (3,886 $100K+ customers +18% YoY), but recent reports omit exact figure amid acquisition noise (Red Canary churn noted). Prior qualitative "robust NRR" in previews; no public FY26 quarterly rate found—additional transcript research recommended for confidence.[2][7]
GAAP Profitability Remains Elusive (Q2 Net Loss $34M, -4%; H1 -$46M), Driven by $405M Stock Comp and 25% Op Ex Rise, but Path Accelerates via 22% Non-GAAP Op Margin and FCF Scale—FY26 Non-GAAP EPS Guide $3.99-4.02 Signals Leverage.
Key drivers: Absolute op ex grows (S&M +20-21%, R&D +32-34%) for AI/Zero Trust hires, but % decline long-term per MD&A; economies from RPO $6.05B (+31% YoY, 47% current) and deferred revenue $2.36B ensure cash conversion. No explicit GAAP timeline, but shrinking losses (-$52M Q2 op loss) and raised non-GAAP op income guide ($742-748M) imply 2027+ via share dilution control (169M shares).[1][5]
| Period | GAAP Net Loss (USD M) | Non-GAAP Net Income (USD M) | FY26 Non-GAAP EPS Guide | Source |
|---|---|---|---|---|
| Q2 FY26 | (34) | 169 | N/A | 10-Q / Release[1] |
| H1 FY26 | (46) | N/A | $3.99-4.02 (22-23% growth) | 10-Q / Q2 Guide[5] |
What this means to enter: GAAP path demands sub-80% op ex/revenue at scale; Zscaler's $220M+ quarterly stock comp normalizes non-GAAP, but competitors without FCF ($3.5B liquidity) face dilution traps.[1]
Forward Guidance Raised Post-Q2: FY2026 Revenue $3.309-3.322B (24%), ARR $3.73-3.745B (24%), Signaling Confidence in AI/Zero Trust Durability Amid Macro Cycles.
Raised from initial post-FY25 ($3.265-3.284B rev, $3.676-3.698B ARR); ~40% net new ARR H2 implies acceleration. Q3: Rev $834-836M (23%). No GAAP profit guide; focus non-GAAP op/F CF expansion.[5]
Implications: Analysts project profitability in 3 years (6.4% margins); Zscaler's $6.1B RPO visibility de-risks vs. peers.[8] Confidence high on filings; NRR estimate moderate (not in Q2 docs).
Recent Findings Supplement (March 2026)
Recent Q2 FY2026 Earnings (Feb 26, 2026 Release)
Zscaler's Q2 FY2026 (ended Jan 31, 2026) revenue hit $815.8M, up 26% YoY, beating prior guidance ($797-799M) via accelerated net new ARR of $156M (19% YoY) driven by AI Security demand quadrupling enterprise AI app usage; this exceeded the ~$3.2B ARR from Q1, pushing total ARR to $3.36B (+25% YoY, or 21% organic ex-Red Canary).[1][2][3]
- Revenue: $815.8M (+26% YoY from $647.9M)[4]
- ARR: $3,359M (+25% YoY); net new ARR $155.5M[1]
- GAAP gross margin: 77% (Q2), 76.6% (H1 FY2026)[4]
- Non-GAAP gross margin: 80%[2]
- GAAP operating margin: -6% (Q2), loss $51.8M[4]
- Non-GAAP operating margin: 22% ($181M income)[1]
- FCF: $169.1M (21% margin, +18% YoY); H1 FY2026 FCF $582.4M (36% margin)[2]
- GAAP net loss: $34.3M (vs. $7.7M YoY); H1 net loss $45.9M[4]
Implications for competitors: Zscaler's Rule-of-62 (26% growth + 36% H1 FCF margin) leverages AI/Zero Trust traffic explosion (1T AI transactions in CY2025), creating a data moat banks can't replicate without platform-scale; new products like Z-Flex ($290M TCV in Q2, +65% QoQ) enable module swaps, locking in expansions.[3]
| Metric | Q2 FY2026 | YoY Growth |
|---|---|---|
| Revenue | $815.8M | +26%[1] |
| ARR | $3.36B | +25%[1] |
| Net New ARR | $156M | +19%[3] |
Updated TTM Financials (Post-Q2 FY2026)
Post-Q2, TTM revenue reached ~$3.0B (up from ~$2.83B implied prior), with GAAP losses persisting ($67.6M net loss TTM) but FCF surging to $942M TTM amid 30% FCF/revenue LTM; mechanism: deferred revenue dip to $2.36B (-5% QoQ) accelerates recognition while RPO hits $6.05B (+ visibility, 47% current).[5][4]
- TTM revenue: $3.00B[5]
- TTM GAAP gross margin: 76.7%[5]
- TTM GAAP operating margin: -6.4%[5]
- TTM FCF: $942M (levered)[5]
- TTM profit margin: -2.25%; ROE -3.56%[5]
Implications for entrants: TTM FCF at 30%+ reflects CapEx efficiency (mid-single digits % revenue FY26 guide), but $1.24B accumulated deficit signals scale barriers—new players lack Zscaler's 728 $1M+ ARR customers (up from Q1).[3]
| TTM Metric (as of Jan 31, 2026) | Value |
|---|---|
| Revenue | $3.00B[5] |
| GAAP Gross Margin | 76.7%[5] |
| GAAP Operating Margin | -6.4%[5] |
| Levered FCF | $942M[5] |
ARR Trajectory & Retention (No New NRR Disclosure)
ARR trajectory accelerated past $3.2B (Q1: $3.20B) to $3.36B in Q2, on track for raised FY26 guide $3.73-3.75B (+24% YoY, up from 23%); ex-Red Canary, H1 net new ARR +10% YoY, H2 ~9.5% implies sustained 20%+ organic via AI/Zero Trust pillars (AI Security ~$400M ARR).[3][1] No Q2 NRR disclosed (absent from filings/transcript, unlike prior patterns); retention inferred strong from 728 $1M+ ARR customers.[2]
Implications for competition: Organic ARR momentum (H1 10% net new ex-acquisitions) ties to platform lock-in (Z-Flex expansions), where rivals fragment across point solutions—non-obvious: agentic AI traffic "exponentially" boosts metered revenue.[3]
| Period | ARR | YoY Growth | Net New ARR (ex-Red Canary) |
|---|---|---|---|
| Q1 FY26 | $3.20B | +26% | N/A[6] |
| Q2 FY26 | $3.36B | +25% | +$139M (+7%)[1] |
| FY26 Guide (Raised) | $3.73-3.75B | +24% | ~9.5% H2 organic[3] |
Raised FY2026 & Q3 Guidance
Guidance raised across-the-board post-Q2 beat: FY26 revenue to $3.31-3.32B (+24% YoY from prior $3.28-3.30B), ARR to 24% growth, non-GAAP op margin expansion via sales efficiency (H1 22%); Red Canary uplift to $130M ARR/$125M revenue (from $95M/$90M).[1][3]
- Q3 revenue: $834-836M (+23% YoY)
- Q3 non-GAAP op margin: 22.4-22.6%
- FY26 revenue: $3.309-3.322B (+23.8-24.3%)
- FY26 ARR: $3.730-3.745B (+24%)
- FY26 non-GAAP EPS: $3.99-4.02
- FY26 FCF margin: 26.5-27%[1]
Implications for market: Raised guide signals H2 acceleration (40% net new ARR in Q3), but stock dip reflects scrutiny on organic deceleration—entrants face "AI era" barrier where Zscaler's 93% data transfer growth via Zero Trust moats scale revenue without proportional costs.
| Guidance | Q3 FY26 | FY2026 (Raised) |
|---|---|---|
| Revenue | $834-836M | $3.309-3.322B[1] |
| ARR | N/A | $3.730-3.745B[1] |
| Non-GAAP Op Margin | 22.4-22.6% | ~22.5%[1] |
| FCF Margin | N/A | 26.5-27%[1] |
Path to GAAP Profitability
10-Q confirms ongoing GAAP losses expected "foreseeable future" ($34M Q2 net loss, TTM -$68M) due to R&D/sales investments despite gross margin stability (76.5-77%); drivers: opEx growth outpacing revenue short-term, offset by FCF leverage (H1 36% margin) and RPO $6.05B (91% in 3 years)—no timeline given, prioritizing AI/Zero Trust scale.[4]
Implications for rivals: GAAP path hinges on non-GAAP 22% margins compounding via traffic moat (AI agents exploding usage), where incumbents' legacy hardware drags FCF below 20%; confidence medium—additional 10-Q MD&A needed for loss trajectory.
NRR Confidence: Low—no post-9/1/25 disclosure found; prior ~120% inferred stable via expansions. TTM data Yahoo-derived (high confidence, post-Q2). All figures USD.[2]