Zscaler stock price declines, growth expectations unmet, AI innovation under pressure

Zscaler Inc. stock dropped over 9% following its recent earnings release due to disappointing results that fell short of expectations. In the fiscal second quarter, Zscaler reported earnings of $1.01 per share and revenue of $815.8 million, surpassing analyst estimates of $0.77 per share and $798.3 million.

Thanks to customer growth, Zscaler’s annual recurring revenue increased by 25% to $3.359 billion. The company added $155.5 million in net new recurring revenue this quarter. Operating cash flow reached $204.1 million, up from the same period last year. At quarter’s end, the company held $3.513 billion in cash and short-term investments.

This year, Zscaler launched several new products related to AI security innovation. Notably, Zscaler AI Protect, a solution focused on safeguarding and managing enterprise AI deployments, helps organizations manage their AI assets. These solutions include AI asset management, AI access security, and red team testing features.

On February 5, the company acquired browser security firm SquareX Ltd., enhancing browser security with lightweight extensions to strengthen protection.

Zscaler CEO Jay Choudhary directly stated, “Zscaler is recognized as a cybersecurity platform suitable for the AI era.”

The company expects future earnings between $1.00 and $1.01 per share, and revenue between $834 million and $836 million, exceeding analyst expectations. The full-year outlook also remains positive.

Overall, Zscaler’s earnings report isn’t bad, but in a market driven by the AI boom and the demand for faster growth in tech and cybersecurity, its somewhat conservative outlook and performance may not be enough to attract investors. As concerns grow that AI could replace some traditional subscription software, Zscaler’s stock faces pressure.