Zscaler Q4 Guidance Misses Expectations, Shares Plunge 17% After Hours

Cybersecurity giant Zscaler saw its stock price plummet by 17% in after-hours trading on Tuesday due to its fourth-quarter revenue guidance falling short of market expectations.

Although the company's performance in the third quarter exceeded Wall Street's general expectations, the somewhat weak sales prospects for the next quarter directly triggered investors' concerns about the high valuation of this cloud security enterprise.

This guidance negative not only gave back some of the stock's gains since May, but also intensified market cyclical fears that the widespread adoption of artificial intelligence technology could lead to the gradual elimination of some traditional software services.

Third-Quarter Earnings Exceed Expectations, but Guidance Sparks Worry

Zscaler's reported financial statements show that the adjusted earnings per share for the third quarter were $1.08, up from $0.84 last year, and also exceeded the expected $1.01 from Wall Street analysts. The company's revenue for the same period grew by 25% to $850.5 million, higher than the $835.6 million expected by the consensus of analysts surveyed by FactSet. The net loss was $13.9 million, higher than last year's $4.1 million.

However, the company expects fourth-quarter revenue to be between $875 million and $878 million, with the lower bound and median of its range failing to meet the expected target of $878.6 million set by Wall Street.

Although the company raised its performance guidance for the full fiscal year 2026, increasing its revenue expectations to $3.32 billion to $3.33 billion, after-hours stock prices still plummeted by 17% due to the lack of explosiveness in the short-term guidance.

AI Security Business Becomes a Core Growth Point

Faced with market concerns about the possibility of AI technology phasing out some software businesses, Zscaler's CEO stated that the company's positioning as a cybersecurity platform in the AI era is clear, attracting a large number of new customers. To deepen its AI security layout, Zscaler recently announced plans to acquire data security vendor Symmetry Systems, another move following its acquisition of Red Canary and other companies.

Morgan Stanley's analyst team pointed out that this acquisition is expected to further strengthen Zscaler's AI security roadmap, with AI security becoming one of the company's fastest-growing business segments. Wall Street giants estimate that by the end of fiscal 2026, Zscaler's annual recurring revenue in the AI security sector could break through the $500 million mark, becoming a core performance support.

Market Remains Cautious About Monetization Prospects

Although Zscaler rebounded by 45% in May due to a market confidence recovery, before the release of the financial report, the stock has fallen by about 16% year-to-date, reflecting the divergence on the capital side.

Morgan Stanley analysts believe that investors will continue to seek clearer evidence to confirm that these new platform capabilities can be transformed into tangible revenue growth and monetization in the short term. Amid intertwining valuation repair and technological transformation, the volatility of the security software sector is significantly increasing, and in the short term, capital's sensitivity to guidance that falls short of expectations has reached a high level.