Zscaler (ZS) stock fell more than 21% in premarket trading on Wednesday, May 27, extending a near-17% drop from after-hours the night before. The sell-off came after the cloud security company cut its free cash flow forecast while also flagging softer growth expectations for fiscal 2027.
The premarket price stood near $143.90, down roughly $40 from the prior close of $184.60.
Q3 results were actually strong. Revenue hit $850.5 million, a 25% year-over-year gain, beating the company’s own guidance. Adjusted EPS of $1.08 cleared the $1.01 consensus. Annual recurring revenue also rose 25%, reaching $3.53 billion.
$ZS (Zscaler) #earnings are out: pic.twitter.com/o22xGiutJS
— The Earnings Correspondent (@earnings_guy) May 26, 2026
So why the pain? Investors focused on what comes next.
Full-year free cash flow margin guidance was cut to 22.8–23.3%, down sharply from the prior range of 26.5–27%. The company said higher capital expenditure — driven by locking in memory, storage, and processor pricing ahead of expected cost increases — was the main driver.
The FY27 preliminary outlook added more pressure. Management guided for ARR and revenue growth of 16–17%, well below the 20%-plus rate the market had been pricing in.
On top of that, two senior sales leaders left the company. Management cited the departures as a reason for the cautious FY27 assumptions, particularly around new customer growth.
Truist kept its Buy rating but cut its price target to $200 from $250. The firm noted the quarter was solid across revenue, ARR, and profitability, with gross margins at 76.63%, but acknowledged the outlook was conservative.
Evercore ISI took a harder line, downgrading Zscaler to In Line from Outperform, pointing to the leadership changes and weaker FY27 guidance.
Mizuho trimmed its target to $185 from $210. RBC Capital cut to $200 from $205 but held its Outperform rating. Morgan Stanley lowered its target to $145 from $155, citing growing competition in the SASE space.
Jefferies was more constructive, calling the FY27 ARR guide a “much-needed reset” and raising its FY26 EPS estimate to $4.12. The firm flagged the Red Canary and Symmetry acquisitions as growth levers.
One bright spot analysts pointed to was the Z-Flex program, Zscaler’s flexible purchasing option. It reached $480 million in total contract value during Q3, up over 60% quarter-over-quarter, and made up roughly 38% of RPO bookings.
CEO Jay Chaudhry positioned the company as built for AI-era security threats, citing partnerships with Anthropic and OpenAI and the launch of its Project AI-Guardian platform.
The company also has a pending $175 million acquisition of Symmetry Systems in the pipeline.
For Q4, Zscaler guided revenue of $875–$878 million and adjusted EPS of $1.08–$1.09. Full-year revenue guidance was raised to approximately $3.33 billion, slightly above the $3.32 billion consensus.
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