What Happened?
Shares of cloud security platform Zscaler (NASDAQ:ZS) fell 4.4% in the afternoon session after the company reported second-quarter results that beat expectations, though conservative guidance for net-new annual recurring revenue weighed on sentiment.
Sales, operating profit, and earnings per share exceeded Wall Street's expectations, according to the company's press release. The company reported revenue of $898.2 million vs analyst estimates of $877.2 million (24.9% year-on-year growth, 2.4% beat). Adjusted EPS was $1.19 vs analyst estimates of $1.09 (9.2% beat). Adjusted Operating Income clocked in at $218.4 million vs analyst estimates of $207.4 million (24.3% margin, 5.3% beat). Sales and EPS guidance for the next quarter also came in ahead of consensus.
Alongside the results, Zscaler announced a restructuring plan to reduce headcount by approximately 3%. On the earnings call, Chief Financial Officer Kevin Rubin said the cut reallocates resources toward artificial intelligence and growth initiatives. He noted that two sales leaders (a geo leader and a vertical leader) departed the previous quarter, adding that the transition will play out in the first half of fiscal 2027 and is reflected in guidance. Rubin factored this sales turnover, along with the uptake pace for the integrated SecOps solution, into the net-new ARR outlook, even after net-new ARR excluding Red Canary grew 17% in the quarter. Furthermore, he said the company pulled forward data-center purchases and that higher memory prices should keep capital spending elevated in fiscal 2027.
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What Is The Market Telling Us
Zscaler’s shares are extremely volatile and have had 31 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 1 day ago when the stock gained 2.4% on the news that software equities broadly gained momentum following a pullback in treasury yields and second-quarter financial results from Snowflake.
Lower Treasury yields supported the move after Fed Governor Christopher Waller signaled support for keeping rates steady. The 10-year yield fell to 4.756%, while the 2-year yield declined to 4.328%, according to CNBC. Because software valuations are heavily based on cash flows expected years into the future, lower yields reduce the discount rate applied to those earnings and can increase the value investors assign to the group today. Snowflake surged after reporting earnings and increasing its forward outlook, sparking widespread optimism across the enterprise software industry.
Taking a closer look at the quarter, SNOW’s revenue reached $1.55 billion, up 35% year on year, driven by product revenue of $1.48 billion, which grew 37%, the company reported in an official press release. The upbeat report bolstered investor sentiment regarding enterprise tech demand and software spending.
Zscaler is down 23.5% since the beginning of the year, and at $168.65 per share, it is trading 49.8% below its 52-week high of $336.27 from November 2025. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at only $596.12.
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