Zscaler Shares Drop 4% After Q4 Beat as Free Cash Flow Plunge and Slowing Growth Guidance Weigh

Zscaler reported fiscal fourth-quarter 2026 revenue of $898.2 million, up 25% year over year and above analyst estimates of $877 million, alongside non-GAAP EPS of $1.19 and a record non-GAAP operating margin. Despite the headline beat, shares fell roughly 3.5% to 4% on Friday as investors focused on a sharp decline in free cash flow and the implied deceleration embedded in full-year guidance.

Free cash flow came in at $60.8 million for the quarter, missing the $66.9 million consensus estimate and falling 65% from the same period a year earlier. Annual recurring revenue reached $3.77 billion, net retention rate stood at 115%, and Fortune 500 penetration hit 50%, all pointing to solid enterprise adoption. Large-deal activity surged during the quarter.

For fiscal year 2027, management guided for revenue of $3.91 billion to $3.94 billion, non-GAAP EPS of $4.86 to $4.90, and a free cash flow margin of approximately 23%, a trajectory analysts noted represents decelerating top-line growth relative to recent quarters. The stock, which trades at a historically low forward price-to-earnings ratio of roughly 36 times, remains down approximately 20% year to date and about 30% year over year. Cybersecurity peers moved with Zscaler on Friday, with CrowdStrike slipping and Palo Alto Networks holding steady.

BMO Capital Markets reiterated its Outperform rating on Zscaler and raised its price target to $200 from $178. Some analysts view the valuation as compelling given the growth-adjusted multiple, while others argue the company lacks the explosive AI-driven momentum seen at leading cybersecurity peers.