Why Zscaler Stock Fell Despite The Cybersecurity Firm Posting Earnings BeatZscaler Stock Tumbles Despite Earnings Beat

Zscaler (ZS) stock slid Wednesday despite the cybersecurity company posting fiscal first-quarter results and a sales forecast ahead of Wall Street expectations. With Zscaler up 60% year-to-date heading into the report, analysts noted that market expectations were high.

Zscaler said in a news release late Tuesday that it earned an adjusted 96 cents per share for the Oct. 31-ended quarter, up 25% from the same period a year earlier. That beat the 86 cents per share adjusted earnings that analysts polled by FactSet were forecasting. Sales increased 26% to $788 million, compared with analyst estimates of $773 million.

For the current quarter, Zscaler guided for sales of $798 million. Prior to the company posting its results, analysts were modeling Zscaler’s revenue to reach $796 million for the January-ending period. Guidance for earnings per share between 89 cents and 90 cents was in-line with estimates.

“Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform,” Chairman and Chief Executive Jay Chaudhry said in a news release.

On the stock market today, Zscaler stock shed more than 10% to 258.80.

Wall Street Response

The San Jose, Calif.-based Zscaler provides cloud-based cybersecurity services. It is a major player in securing corporate networks, including through an offering known as Secure Access Service Edge, or SASE. Zscaler competes in that market against Palo Alto Networks (PANW), Cloudflare (NET), Fortinet (FTNT) and others.

Analysts were generally positive on Zscaler’s performance for the quarter but noted results may have only matched buy-side expectations, sometimes called whisper numbers.

Zscaler “beat expectations on the FQ1 print, though results largely in-line with buyside expectations,” wrote Morgan Stanley analyst  Meta Marshall in a Wednesday client note. “While nits to pick at, traction with expansion categories and performance of Red Canary in early days leave us confident in growth prospects.”

Marshall reiterated an overweight, or buy, call.

Zscaler acquired Red Canary last year. It specializes in a form of cybersecurity known as managed detection and response. Some analysts said investors are looking for more clear disclosures in how Red Canary is performing.

Mizuho analyst Gregg Moskowitz wrote that in Zscaler’s results “there were two unwelcome surprises: management guided to (fiscal second quarter) net new ARR slightly lower than prior, and it declined to provide a specific contribution from the recent Red Canary acquisition.”

Moskowitz reiterated a neutral call and lowered his price target to 310 from 325.

Zscaler Stock’s 2025 Rally

The slide Wednesday adds to a rough November for Zscaler stock. Shares have slid 21% since the start of the month, though ZS stock remained ahead by 44% year to date.

Coming into the report, Zscaler stock had an IBD Composite Rating of 91 out of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 or better.

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