Z scalerThe company’s stock plunged more than 30% on Wednesday, its worst day ever, after the company released underwhelming guidance that overshadowed its better-than-expected third-quarter results.
The cybersecurity company had expected annual recurring revenue growth of 16% to 17% year over year for fiscal 2027, which was lower than StreetAccount’s expectations. Zscaler expects revenue for the quarter to be between $875 million and $878 million, slightly short of the $878.6 million that FactSet expected.
Zscaler projects ARR of $3.74 billion to $3.75 billion in fiscal 2026, or approximately 24% year-over-year growth.
Zscaler said it lost two sales leaders during the quarter, and finance chief Kevin Rubin said the company was taking a “cautious approach” to guidance during the transition.
The company also said that capital expenditures as a percentage of revenue will increase by 200 basis points during fiscal 2027 due to memory shortages, price and cost increases.
“We’re being disciplined in our approach to actually projecting, but we think there’s a huge opportunity there,” Zscaler CEO Jay Chaudhry told CNBC’s John Fort on Wednesday. “The need for cybersecurity has never been greater, and Mythos is playing a big role in adding fuel to the fire.”
Zscaler is one of the companies working with Anthropic on Project Glasswing, which aims to test the functionality and vulnerabilities of models before making them available to the public.
Investor sentiment toward software stocks has soured on concerns that artificial intelligence will upend business models. Cybersecurity stocks have also struggled as a result, but the rise of AI-powered cyberthreats is increasing expectations that companies will spend more on expanding their defenses.
Last year, Zscaler cut its value in half.
Despite the lackluster outlook, Zscaler beat third-quarter earnings expectations, posting adjusted earnings per share of $1.08 on revenue of $850 million. Analysts expect adjusted EPS of $1.01 on revenue of approximately $835 million.
In response to this report, Evercore ISI downgraded the stock from Outperform to Inline, and lowered its price target, citing weak outlook for fiscal 2027, management shake-up, and potential for disruption.
“As the company navigates these changes, we expect the stock to remain range bound for the next few quarters, but out of favor,” they wrote.
—CNBC’s Seema Mody contributed reporting
