Zscaler Inc (NASDAQ:ZS), a leader in cloud-based internet security, reported financial results for its fiscal second quarter of 2026 that surpassed Wall Street's expectations on key profitability and revenue metrics. Despite the beat, the company's stock experienced a significant decline in after-hours trading, highlighting a market reaction focused on forward guidance and broader sector sentiment.
Earnings and Revenue Performance Versus Estimates
The company's performance for the quarter ended January 31, 2026, demonstrated continued strong execution. Zscaler reported revenue of $815.8 million, representing a 26% increase year-over-year. This figure came in above the analyst consensus estimate of approximately $822.8 million.
On the profitability front, the outperformance was more pronounced. The company posted non-GAAP earnings per share (EPS) of $1.01, solidly exceeding the average analyst estimate of $0.92 per share. This 12.6% beat on bottom-line earnings indicates effective cost management and scaling within its software-as-a-service (SaaS) business model.
Key Q2 FY2026 Results vs. Estimates:
- Reported Revenue: $815.8 million
- Estimated Revenue: ~$822.8 million
- Result: Beat
- Reported Non-GAAP EPS: $1.01
- Estimated Non-GAAP EPS: $0.92
- Result: Beat
Market Reaction and Price Action
Despite the double beat on top and bottom lines, Zscaler's stock fell sharply in after-hours trading, down over 10% following the report. This negative price action suggests investors were scrutinizing elements beyond the historical results. The decline aligns with recent trading patterns for the cybersecurity firm, with the stock down approximately 22% over the past month, underperforming the broader technology sector.
Forward Guidance and Analyst Expectations
A central component of the earnings release was an updated outlook. Zscaler raised its fiscal 2026 guidance for Annual Recurring Revenue (ARR) growth to 24%, signaling sustained confidence in its core subscription business. For the upcoming fiscal third quarter (Q3 FY2026), the company provided revenue guidance of approximately $835 million.
This forward outlook appears to be a primary factor in the market's reaction. While the raised ARR guidance is a positive signal, the Q3 revenue forecast of $835 million is only slightly above the current analyst consensus estimate of around $836.8 million. The guidance, while solid, may not have provided the significant upside surprise that investors were hoping for to justify the stock's valuation, leading to a "sell the news" response.
Guidance vs. Current Estimates:
- Company Q3 FY2026 Revenue Guidance: ~$835 million
- Analyst Q3 FY2026 Revenue Estimate: ~$836.8 million
- Company FY2026 ARR Growth Guidance: Raised to 24%
Press Release Highlights
The company's official announcement emphasized exceeding the high-end of its own second-quarter guidance for both revenue and profitability. Key highlights from the press release include:
- Significant year-over-year revenue growth of 26%.
- Strong profitability metrics that outperformed expectations.
- An increase in full-year fiscal 2026 ARR growth guidance to 24%, underscoring management's bullish view on continued business momentum and customer adoption of its Zero Trust Exchange platform.
Broader Market Context
The earnings report arrived amid a volatile period for enterprise software stocks. Recent trading sessions have seen sharp movements in software shares, often driven by macro commentary on artificial intelligence from industry leaders like Nvidia's Jensen Huang. While this broader sentiment provides context for sector volatility, Zscaler's specific post-earnings move appears directly tied to its financial results and near-term guidance.
For a detailed breakdown of historical earnings, future estimates, and analyst projections, you can review the data here: ZS Earnings & Estimates.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
