Zscaler (ZS) delivered a "decent" fiscal Q3, outperforming across most key metrics, though fiscal 2026 guidance was mixed, RBC Capital Markets said Tuesday in a note.
Fiscal 2026 annual recurring revenue guidance was raised by $7 million, less than the $19 million beat on consensus, which is just a pass-through of the Red Canary beat, the brokerage said.
Free cash flow margin guidance was lowered as a result of pull-forward on investments expected in fiscal 2027 to Q4, in order to lock in equipment prices ahead of potential increases, resulting in high single-digit capital expenditure versus expectations of mid-single-digit expenditure, according to the note.
Zscaler offered preliminary fiscal 2027 guidance of total ARR and revenue growth of 16% to 17% versus consensus of 18.4% and 19.5%, respectively, the brokerage added.
The company expects fiscal 2027 capital expenditure to be 200 basis points higher, and will exclude Red Canary renewals from its net new annual recurring revenue calculations, which had a positive impact in fiscal 2026. It will stop reporting Red Canary in fiscal 2027, the note said.
RBC kept an outperform rating on Zscaler with a price target of $205.
Shares of Zscaler were down more than 31% in Wednesday trading.
Price: $126.84, Change: $-57.76, Percent Change: -31.29%