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Zscaler's Conservative Outlook Reflects Red Canary, Competitive Headwinds, Oppenheimer Says

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Zscaler's Conservative Outlook Reflects Red Canary, Competitive Headwinds, Oppenheimer Says

Zscaler's (ZS) fiscal 2027 outlook is conservative and reflects factors including an expected loss of Red Canary's customers and the competitive artificial intelligence security environment, Oppenheimer said in a note emailed Friday.

Late Thursday, the cloud security company reported fiscal fourth-quarter results above Wall Street's consensus and outlined a strong full-year outlook.

Zscaler expects annual recurring revenue of $4.396 billion to $4.426 billion, reflecting year-over-year growth of 16.6% to 17.4%. The FactSet-polled consensus points to $4.40 billion in fiscal 2027.

The Red Canary business, acquired by Zscaler in 2025, saw elevated churn in 2026, Chief Financial Officer Kevin Rubin said on an earnings conference call Thursday, according to a FactSet transcript.

"As it relates to accounts that are up for renewal, ... we'll continue to see the higher, more traditional churn rates of (a managed detection and response) business," Rubin told analysts.

Management took "a prudent approach" to the fiscal 2027 outlook, Oppenheimer analysts, including Ittai Kidron said. "We remain bullish, expecting better execution against achievable (2027) targets and reiterate our positive stance considering the setup and valuation," Kidron wrote.

Red Canary's integration and competitive headwinds, among other areas, could limit investor confidence in the near term, the brokerage said.

AI security is in demand, and there are "lots and lots of" companies competing in the space, with "probably tons of startups as well," Chief Executive Jay Chaudhry said on the call.

"We expect investors to take a 'wait-and-see' approach while viewing the outlook as achievable and supportive of consistent execution and positive revisions through (fiscal 2027)," Kidron said.

Shares of the company declined 4.6% in Friday trade, and have fallen nearly 25% this year.

Zscaler projects full-year adjusted earnings of $4.86 to $4.90 on revenue between $3.91 billion and $3.94 billion. Market expectations are for $4.82 and $3.92 billion, respectively.

Oppenheimer raised Zscaler's adjusted EPS estimate to $4.88 from $4.42 for 2027 and left the revenue outlook steady at $3.9 billion. The brokerage has an outperform rating on Zscaler's stock with a $250 price target.

Cybersecurity firm Palo Alto Networks (PANW) reported a fiscal fourth-quarter beat Tuesday, though its guidance for adjusted EPS and revenue topped analysts' estimates. Last week, CrowdStrike (CRWD) raised its full-year net new ARR outlook amid increasing demand for cybersecurity solutions to address AI risks.

Price: $169.88, Change: $-7.92, Percent Change: -4.45%

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