10-K: Zscaler Reports Strong Revenue Growth in FY26

Zscaler, Inc. announced its fiscal year 2026 results, showcasing a 25% year-over-year revenue increase to $3.35 billion, driven by expanding customer base and increased adoption of its Zero Trust Exchange platform.

Summary

• Zscaler reported revenue of $3.35 billion for fiscal year 2026, a 25% increase from $2.67 billion in fiscal year 2025.
• The company experienced a net loss of $63.2 million in fiscal year 2026, compared to a net loss of $41.5 million in fiscal year 2025.
• Annual Recurring Revenue (ARR) reached $3.77 billion as of July 31, 2026, up from $3.01 billion in the prior year.
• The customer base grew to approximately 11,000 as of July 31, 2026.
• Significant investments were made in research and development ($903.4 million) and sales and marketing ($1.5 billion) to support growth and innovation, particularly in AI security.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a generally positive filing, reflecting strong revenue growth and increasing customer adoption, though continued net losses and significant investments in R&D and sales & marketing are noted.

Positives

• Revenue increased by 25% to $3.35 billion in fiscal year 2026.
• Annual Recurring Revenue (ARR) grew to $3.77 billion as of July 31, 2026.
• Customer base expanded by 16% to approximately 11,000 as of July 31, 2026.
• Non-GAAP operating margin improved to 23% in fiscal year 2026 from 22% in fiscal year 2025.
• Free cash flow increased to $779.1 million in fiscal year 2026.
• Strong growth in international revenue, representing 47% of total revenue in fiscal year 2026.

Negatives

• The company reported a net loss of $63.2 million for fiscal year 2026.
• Accumulated deficit stands at $1.25 billion as of July 31, 2026.
• Operating expenses increased by 24% to $2.71 billion in fiscal year 2026.
• Significant investments in R&D and Sales & Marketing continue to impact profitability in the short term.

Risks

• Intense and increasing competition could lead to market share loss.
• Failure to achieve or sustain profitability in the future due to ongoing net losses and significant investments.
• Dependence on channel partners for a substantial portion of revenue.
• Potential for service interruptions or delays impacting customer trust and business operations.
• The actual or perceived failure of the cloud platform to block malware or prevent security breaches could harm reputation.
• Risks associated with the rapid evolution and adoption of AI, including new threats and governance challenges.
• Potential for intellectual property claims and litigation.
• Reliance on key personnel for business growth and success.

Future Outlook

The company expects continued investment in sales and marketing, R&D, and G&A to support growth. While operating expenses are expected to increase in absolute dollars, the company aims to manage these investments judiciously for long-term growth. The company believes its platform is well-positioned to address the evolving needs driven by cloud adoption, mobility, and AI.

Management Comments

• We empower our customers with the cybersecurity solutions necessary to protect their enterprises, drive growth and outpace competitors where success depends on securely adopting the technologies required to operate and compete effectively in an AI world.
• As AI redefines how businesses operate, and powerful AI-enabled cyberthreats proliferate, enterprises must now adopt a zero trust approach to security.
• We believe that our ability to embed AI-driven intelligence throughout our zero trust architecture positions us to deliver the adaptive, proactive and continuously improving security that the modern threat landscape demands.
• Zero trust integrated with AI is the new foundation for enterprise security architectures, and we are pioneering this convergence.

Industry Context

StockSavvy.ai notes that Zscaler's focus on Zero Trust architecture and AI-driven security aligns with major industry trends. The increasing sophistication of cyber threats, particularly those leveraging AI, necessitates advanced security solutions like those offered by Zscaler. The company's positioning as a cybersecurity platform for the AI era is a strategic advantage in a rapidly evolving threat landscape.

Comparison to Industry Standards

• Zscaler's revenue growth of 25% in FY26 outpaces the general cybersecurity market growth, which is projected to grow at a CAGR of around 10-15% in the coming years.
• The company's non-GAAP operating margin of 23% is competitive within the cloud security sector, though some mature players may achieve higher margins.
• Zscaler's investment in R&D as a percentage of revenue (27% in FY26) is substantial, reflecting a commitment to innovation comparable to leading technology companies focused on emerging areas like AI security.
• The company's customer acquisition strategy, with over 11,000 customers including 40% of Forbes Global 2000, demonstrates strong market penetration, rivaling or exceeding that of many specialized cybersecurity vendors.

Legal Proceedings

• The filing notes that the company is a party to various litigation matters from time to time, including patent, commercial, product liability, employment, class action, whistleblower and other litigation and claims, as well as governmental and other regulatory investigations and proceedings. However, it states that there is no pending or threatened legal proceeding that is likely to have a material adverse effect on its future financial results or operations.

Stakeholder Impact

• Shareholders: Continued investment in growth may impact short-term profitability but aims for long-term value appreciation. Dilution risk from potential stock issuances.
• Employees: Continued hiring and investment in R&D and sales, but also a workforce reduction of approximately 3% announced post-period end.
• Customers: Continued innovation and platform enhancement, but potential for increased scrutiny on spending due to macroeconomic conditions.
• Creditors: Company has $1.725 billion in convertible senior notes due 2028, with a plan to repay the principal in cash.

Next Steps

• Continue to win new customers globally.
• Expand relationships with existing customers through additional users and services.
• Leverage channel partners to participate in cloud transformation initiatives.
• Invest in research and development for new and differentiated solutions.
• Expand into additional market segments and geographies.
• Transition to new corporate headquarters in Santa Clara, California in Q1 FY27.

Key Dates

Recommendation

Zscaler demonstrates strong revenue growth and market leadership in cloud security, particularly with its AI focus. However, the continued net losses, significant ongoing investments, and competitive pressures warrant a cautious approach. While the long-term potential is evident, the current path to sustained profitability and the macroeconomic environment suggest a 'hold' rating until clearer signs of profitability emerge or competitive pressures intensify.

Keywords

Zero Trust, Cloud Security, SASE, AI Security, Cybersecurity Platform, Network Security, Data Security, Zscaler Zero Trust Exchange