Cloud security platform Zscaler (NASDAQ: ZS) beat Wall Street’s revenue expectations in Q1 CY2026, with sales up 25.4% year on year to $850.5 million. The company expects next quarter’s revenue to be around $876.5 million, close to analysts’ estimates. Its non-GAAP profit of $1.08 per share was 7.1% above analysts’ consensus estimates.
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Zscaler (ZS) Q1 CY2026 Highlights:
- Revenue: $850.5 million vs analyst estimates of $835.4 million (25.4% year-on-year growth, 1.8% beat)
- Adjusted EPS: $1.08 vs analyst estimates of $1.01 (7.1% beat)
- Adjusted Operating Income: $195.8 million vs analyst estimates of $188.1 million (23% margin, 4.1% beat)
- Revenue Guidance for Q2 CY2026 is $876.5 million at the midpoint, roughly in line with what analysts were expecting
- Management raised its full-year Adjusted EPS guidance to $4.11 at the midpoint, a 2.5% increase
- Operating Margin: -3.5%, in line with the same quarter last year
- Free Cash Flow Margin: 16%, down from 20.7% in the previous quarter
- Annual Recurring Revenue: $3.53 billion vs analyst estimates of $3.51 billion (25.1% year-on-year growth, in line)
- Market Capitalization: $29.32 billion
“Zscaler is ideally positioned as the cybersecurity platform for the AI era. Our differentiated Zero Trust SASE architecture, which hides applications from attackers and eliminates lateral movement, has never been more essential in securing against threats exposed by frontier models and compromised AI agents,” said Jay Chaudhry, CEO, Chairman and Founder of Zscaler.
Company Overview
Pioneering the "zero trust" approach that has fundamentally changed enterprise network security, Zscaler (NASDAQ: ZS) provides a cloud-based security platform that connects users, devices, and applications securely without traditional network-based security hardware.
Revenue Growth
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Zscaler’s 39.4% annualized revenue growth over the last five years was exceptional. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Zscaler’s annualized revenue growth of 25% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. 
This quarter, Zscaler reported robust year-on-year revenue growth of 25.4%, and its $850.5 million of revenue topped Wall Street estimates by 1.8%. Company management is currently guiding for a 21.9% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 19.5% over the next 12 months, a deceleration versus the last two years. Still, this projection is commendable and indicates the market is forecasting success for its products and services.
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Annual Recurring Revenue
While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.
Zscaler’s ARR punched in at $3.53 billion in Q1, and over the last four quarters, its growth was fantastic as it averaged 24.4% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Zscaler a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Zscaler is quite efficient at acquiring new customers, and its CAC payback period checked in at 35.4 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Key Takeaways from Zscaler’s Q1 Results
It was great to see Zscaler’s EPS guidance for next quarter top analysts’ expectations. We were also glad its full-year EPS guidance exceeded Wall Street’s estimates. On the other hand, its revenue guidance for next quarter was in line. Overall, this print had some key positives. The market seemed to be hoping for more, and the stock traded down 16.1% to $155.65 immediately after reporting.
So should you invest in Zscaler right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here (it’s free).
