Zscaler (ZS) Stock Plunges 23% Following Disappointing Q4 Revenue Forecast

Table of Contents Shares of Zscaler experienced a dramatic decline of more than 23% during Wednesday’s premarket session after the cybersecurity firm issued conservative fourth-quarter projections that overshadowed otherwise strong third-quarter performance. Zscaler, Inc., ZS The stock had opened near $127 before the sharp selloff erased a significant portion of its recent appreciation. For the third quarter, adjusted earnings per share landed at $1.08, surpassing analyst expectations of $1.01. Revenue climbed 25% from the prior-year period to $850.5 million, exceeding the Street’s forecast of $835.6 million. However, on a GAAP basis, the company recorded a net loss of $13.9 million, expanding from the $4.1 million loss reported in the same quarter last year. Management lifted full-year revenue projections to a range of $3.32–$3.33 billion and adjusted EPS to $4.10–$4.11. This represents an incremental increase from previous guidance of $3.31–$3.32 billion in revenue and $3.99–$4.02 in earnings per share. Yet investor attention quickly shifted to the fourth-quarter outlook. The company projected Q4 revenue between $875M and $878M, marginally below the $878.6M analyst consensus. Fourth-quarter adjusted EPS guidance of $1.08–$1.09 did exceed the $1.03 estimate. CFO Kevin Rubin characterized the guidance philosophy as “prudent,” though the market reaction suggested skepticism. The more pressing challenge appears to be decelerating new customer growth. During the earnings conference call, Rubin acknowledged underperformance in new customer wins. “The area that we haven’t been performing as well as we’d like is new logo,” he stated, emphasizing it as “a large priority.” He further noted the company is adopting a “tempered view” regarding customer acquisition as it enters the upcoming fiscal year. Zscaler announced plans to intensify its focus on mid-market enterprises with employee counts ranging from 2,000 to 10,000. The company also intends to introduce new customer incentive programs and expand reliance on channel partnerships. Compounding the uncertainty, two senior sales executives departed at quarter-end. Rubin pointed to these departures as contributing factors behind the conservative projections. Financial analysts moved swiftly to adjust their outlook following the announcement. Morgan Stanley’s Meta Marshall reduced her price target to $145 from $155 while maintaining an Equal-Weight rating. Marshall had previously downgraded the stock in April over intensifying competitive pressures, warning that ZS would remain in the “penalty box” until its SecOps offering demonstrates meaningful momentum. UBS lowered its target to $225 from $260. RBC reduced its estimate to $200 from $205. Mizuho trimmed its target to $185 from $210. BMO adjusted downward to $178 from $210. Truist reduced its price target to $200 from $250 while preserving a Buy rating. Stifel decreased to $175 from $180, also maintaining Buy, characterizing the challenges as “idiosyncratic” and attributing them to sales leadership transitions and uncertainty surrounding Red Canary guidance parameters. Morgan Stanley highlighted escalating competition from Palo Alto Networks, Netskope, and Cato Networks as an increasing obstacle. On the expenditure front, Zscaler disclosed plans to accelerate data-center equipment purchases to stay ahead of surging AI-driven infrastructure expenses. Capital expenditure guidance was elevated from mid-single-digit to high-single-digit percentages of revenue. The most optimistic perspective on Wall Street comes from Cantor Fitzgerald’s Jonathan Ruykhaver, who maintained a Buy rating with a $300 price target — suggesting potential upside exceeding 136% from current trading levels.