Can Zscaler Prove Its Growth Engine Still Works Without Acquisitions Doing the Heavy Lifting?

Zscaler Inc (ZS) reports fiscal third-quarter 2026 earnings on May 26, 2026, with analysts expecting a loss of $0.04 per share. The cloud security leader faces a critical test as investors weigh its ability to sustain strong revenue growth while navigating a challenging profitability trajectory. With the stock trading at $182.37—down 19% from its 200-day moving average—the market is looking for evidence that Zscaler's recent momentum can translate into improved earnings performance.

Part 1: Earnings Preview

Zscaler operates the world's largest security cloud, delivering zero trust architecture and cloud-native security solutions to enterprises globally. The company's platform protects users, applications, and data across distributed environments, positioning it as a critical infrastructure provider in the shift to cloud-based security.

Zscaler is scheduled to report fiscal Q3 2026 results on May 26, 2026 after market close. Analysts expect an EPS loss of $0.04 on 12 estimates ranging from a loss of $0.09 to a profit of $0.04. The most recent quarter (fiscal Q2 2026, ended January 31) delivered a loss of $0.08 per share, missing estimates by 60% and marking the company's worst earnings surprise in recent history. Compared to the same quarter last year when Zscaler reported break-even earnings ($0.00), the year-over-year comparison shows deterioration, though analysts note this reflects timing of investments rather than fundamental business weakness.

Three key themes define this earnings story:

Revenue Growth Sustainability: Following the company's strong Q2 performance with 26% revenue growth to $815.8 million and 25% ARR growth to $3.36 billion, investors are watching whether Zscaler can maintain this momentum. The company raised full-year ARR guidance to 24% growth, but the question is whether demand remains resilient amid enterprise budget scrutiny. Management's ability to convert pipeline into bookings will be critical.

Profitability Trajectory: Despite the Q2 earnings miss, Zscaler achieved record non-GAAP operating margin above 22% and operated at a "Rule-of-62" (growth plus profitability), significantly outperforming the Rule-of-40 benchmark. The tension between GAAP losses and strong non-GAAP profitability creates uncertainty about the true earnings power of the business. Investors need clarity on when GAAP profitability becomes sustainable.

Integration and Execution Post-Acquisition: The Red Canary acquisition contributed $114 million to ARR in Q2, representing roughly 3.4% of total ARR. How well Zscaler integrates this asset while maintaining organic growth rates (21% excluding Red Canary) will signal whether the company can successfully execute M&A strategy without disrupting core operations.

Analyst commentary ahead of the release reflects cautious optimism. While 34 of 45 analysts maintain Strong Buy ratings with a mean price target of $223.71 (23% upside from current levels), sentiment has deteriorated over the past month. The wide range of estimates—from a $0.09 loss to a $0.04 profit—suggests significant uncertainty about near-term profitability, even as the long-term growth story remains intact.

Part 2: Historical Earnings Performance

Zscaler's recent earnings track record shows extreme volatility in execution. Over the past four quarters, the company has delivered two significant beats and two notable misses, creating an unpredictable pattern that has kept investors on edge.

The most recent quarter (January 2026) saw Zscaler miss estimates by 60%, reporting a loss of $0.08 versus the expected $0.05 loss—the company's worst performance in the dataset. This followed a strong October 2025 quarter where the company beat by 80%, reporting a $0.01 loss against expectations of a $0.05 loss. The July 2025 quarter was another disappointment with a 100% miss (losing $0.04 versus an expected $0.02 loss), while April 2025 delivered a 100% beat with break-even results versus an expected $0.03 loss.

The pattern reveals no consistent trend—Zscaler alternates between strong execution and significant misses, suggesting either operational volatility or challenges in providing accurate guidance. The magnitude of surprises has been substantial, with beats and misses frequently exceeding 60-80% of the estimate, indicating that consensus forecasts have struggled to capture the company's quarterly dynamics. This inconsistency makes the upcoming quarter particularly difficult to predict, as historical performance offers little guidance on whether Zscaler will beat or miss the $0.04 loss estimate.

Note: These figures reflect diluted GAAP earnings per share, reported before non-recurring items, and may differ from the non-GAAP figures used by some sources.

Part 2.1: Price Behavior Around Earnings

Zscaler reports after market close, meaning Day 0 captures anticipatory trading before results are released, while Day +1 reflects the market's first full reaction to the actual numbers.

Zscaler's post-earnings price action has been characterized by significant volatility, with an average absolute Day +1 move of 8.91%—well above typical market reactions. The most recent earnings (February 2026) triggered a sharp 12.17% decline the day after reporting, despite an initial 7.49% gain on Day 0, illustrating how quickly sentiment can reverse once investors digest the details. The November 2025 report was even more dramatic, with a 13.03% Day +1 drop following a modest 3.35% Day 0 gain.

The data reveals a pattern of substantial Day +1 moves that often contradict Day 0 direction. September 2024's report produced an 18.67% Day +1 decline, while May 2025 and May 2024 both saw strong Day +1 rallies of 9.79% and 8.50% respectively. The average Day 0 move of just 2.89% consistently underestimates the eventual Day +1 reaction of 8.91%, suggesting that initial market responses fail to capture the full impact of Zscaler's results. Investors should prepare for significant volatility, with double-digit percentage moves increasingly common as the market grapples with the company's profitability trajectory and growth sustainability.

Part 2.2: Options Market Expected Move

The options market is pricing an expected move of 11.29% (±$20.60) for the upcoming earnings, which is significantly higher than the historical average Day +1 move of 8.91%. This elevated implied volatility suggests options traders are anticipating above-average price action, possibly reflecting the heightened uncertainty around Zscaler's profitability outlook and the recent pattern of large post-earnings swings. The 11.29% expected move would rank among the larger reactions in recent history, consistent with the 12-13% moves seen in the past two quarters.

Part 3: What Analysts Are Saying

Analyst sentiment on Zscaler remains predominantly bullish but has shown signs of weakening. The consensus rating stands at 4.51 out of 5.00, reflecting strong conviction, with 34 Strong Buy ratings, 2 Moderate Buys, 8 Holds, and 1 Strong Sell among 45 analysts covering the stock. The average price target of $223.71 implies 23% upside from the current price of $182.37, with estimates ranging from a low of $165.00 to a high of $320.00.

However, sentiment has deteriorated over the past month, with the average recommendation slipping from 4.56 to 4.51. Most notably, one analyst downgraded to Strong Sell (up from zero a month ago), while one Hold rating was removed. This shift reflects growing concerns about near-term profitability challenges despite the company's strong revenue growth and market position.

The wide dispersion in price targets—spanning $155 from low to high—underscores the divergent views on Zscaler's valuation. Bulls point to the company's dominant position in zero trust security, strong ARR growth, and improving non-GAAP margins as justification for premium multiples. Bears worry about the persistent GAAP losses, the gap between GAAP and non-GAAP results, and whether the company can sustain growth rates as it scales. The 23% implied upside to the mean target suggests analysts still see value, but the recent deterioration in sentiment indicates that confidence is contingent on Zscaler demonstrating improved earnings execution in the coming quarters.

Part 4: Technical Picture

Zscaler's technical setup heading into earnings shows improving momentum after a difficult period. The Barchart Technical Opinion currently registers a 24% Sell signal, representing a significant improvement from 56% Sell one week ago and 100% Sell one month ago. This rapid shift from maximum bearishness to a more neutral stance reflects the stock's recent recovery rally.

Timeframe Analysis:

• Short-term (Hold): Neutral signal suggests the immediate trend has stabilized after recent gains but lacks strong directional conviction
• Medium-term (50% Sell): Moderate sell signal indicates lingering weakness in the intermediate timeframe despite recent improvement
• Long-term (50% Sell): Moderate sell signal reflects the stock's underperformance relative to its longer-term trend, with price still well below the 200-day average

Trend Characteristics: The trend is characterized as Weak and Weakening, indicating that despite recent price gains, the underlying technical structure remains fragile and vulnerable to reversal.

The stock is currently trading at $182.37, positioned above all key short- and intermediate-term moving averages—the 5-day ($175.55), 10-day ($164.00), 20-day ($152.13), and 50-day ($144.35)—demonstrating strong recent momentum. However, ZS remains below the critical 200-day moving average of $224.08, a significant resistance level that represents an 18.6% premium to current prices. The stock is also trading below its 100-day average of $165.79 when measured against that longer-term benchmark.

The technical picture presents a mixed setup for earnings. The positive momentum indicators—trading above all short-term moving averages and the rapid improvement in the Barchart Opinion from 100% Sell to 24% Sell—suggest building bullish momentum. However, the stock's position 18.6% below its 200-day moving average and the "Weak/Weakening" trend characterization indicate the rally remains fragile. The 200-day moving average at $224.08 represents a critical resistance zone that could cap upside if earnings disappoint. Given the stock's tendency for large post-earnings moves (8.91% average) and the options market pricing in an 11.29% swing, the technical setup is cautiously supportive but vulnerable to sharp reversal if results fail to meet expectations. Traders should watch whether ZS can reclaim the 100-day moving average area as support if volatility strikes.