Markets
markets
Claire Yubin Oh

Zscaler plummets after revenue guidance falls short of estimates

The market has deeply ingrained software-phobia right now, as traders are highly sensitive to anything software-related giving off any whiff of AI-related weakness. So, it’s not a huge surprise to see Zscaler down more than 20% in premarket trading on Wednesday after the cloud security company gave a softer customer growth outlook than expected, despite reporting solid results for its fiscal Q3.

Zscaler announced better-than-expected results across its key metrics for the quarter ended April 30, 2026, including revenue of $850 million (topping analyst estimates of $835 million, compiled by Bloomberg), annual recurring revenue (ARR) of $3.53 billion (vs. the $3.51 billion expected), and adjusted earnings per share of $1.08 (vs. expectations of $1.01).

But Zscaler’s ability to continue its winning streak is the main question — and as far as the company’s early guidance for new customer additions, its future looks bleaker than expected. The security firm now anticipates total ARR and revenue growth of 16% to 17% for fiscal 2027. In the nearer term, Zscaler also expects Q4 revenue to fall between $875 million and $878 million, with its upper limit below Wall Street estimates of $879 million.

Bloomberg Intelligence analysts noted that Zscaler’s fiscal 2027 ARR growth figure “suggests muted new customer additions are likely to weigh on the top line,” adding that the company “lacks identity security for AI agents in the suite, which may limit larger order closings.” Mizuho, RBC Capital Markets, and Evercore ISI analysts, similarly focusing on future guidance, also lowered their price targets for the stock following the call.

Separately, Citi analysts, who spoke to the company’s management following the results, suggested that new customer growth could provide some upside, as new logo growth wasn’t factored into the 2027 baseline. However, they also noted disruptions to the sales organization from two leadership changes, though the Zscaler’s CEO and CFO seem confident that those impacts will be absorbed, and don’t expect disruptions at the “quota-bearing level.”

Peers CrowdStrike and Palo Alto Networks also sank around 2% before the bell on Wednesday.

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