Zscaler posts 25% revenue growth in FY26, targets AI security push
Zscaler (NASDAQ: ZS) has reported full-year fiscal 2026 revenue of $3.35 billion, a 25% increase year on year, with annual recurring revenue reaching $3.77 billion over the same period. The San Jose-based cloud security vendor closed its fourth quarter ended 31 July 2026 with quarterly revenue of $898 million, also up 25%, and a record non-GAAP operating margin of 24%.
The results were boosted in part by the acquisition of Red Canary, which contributed $141 million in ARR. Excluding that acquisition, organic ARR growth was approximately 20%, and organic revenue growth for the full year came in at 20%, reaching $3.21 billion. Net new ARR for the fourth quarter stood at $246 million, up 24% year on year including Red Canary, and 17% on an organic basis.
Financial detail
On a GAAP basis, Zscaler continued to report an operating loss, posting a full-year loss from operations of $133 million, marginally wider than the $128 million loss in fiscal 2025. The company attributed the gap between GAAP and non-GAAP figures primarily to $842 million in stock-based compensation and related payroll taxes across the year, a line that investors in high-growth SaaS vendors track closely as a proxy for true cash cost. Non-GAAP net income for the full year reached $704 million, up 32% from $535 million in fiscal 2025.
Free cash flow for the year was $779 million, representing a 23% margin, though the quarterly figure fell sharply to $61 million, or 7% of revenue, reflecting a near-tripling of capital expenditure in Q4 to $218 million versus $79 million a year earlier. Management attributed the step-up to infrastructure investment as the company scales its data-centre footprint for AI workloads.
Chief executive Jay Chaudhry framed the AI opportunity as central to the company's forward strategy. "By connecting users, workloads, branches, and now agents directly to the applications they need without placing them on the network, we are uniquely equipped to help companies both combat the threats created by agentic AI and securely deploy AI agents and models," he said.
For fiscal 2027, Zscaler guided for revenue of $3.91 billion to $3.94 billion, representing growth of approximately 17%, a deceleration from the 25% pace of fiscal 2026. ARR is expected to reach $4.40 billion to $4.43 billion, growth of roughly 17%. Non-GAAP operating income is guided at $924 million to $932 million, implying approximately 21% growth and a maintained 23% to 24% operating margin.
Market context and competitive positioning
Zscaler operates in a crowded zero-trust network access and SASE market alongside Palo Alto Networks, Fortinet, Netskope and a growing cohort of cloud-native challengers. The company's focus on inline inspection at scale, delivered through a distributed network of over 200 data centres, has historically been its primary differentiation from firewall-centric incumbents.
The pivot towards AI security, specifically securing agentic AI workloads and using AI to automate security operations, reflects a broader industry repositioning. Most major cybersecurity vendors are now articulating similar AI-era narratives; the competitive question is which platforms can demonstrate measurable efficacy gains and which are repackaging existing capabilities. Zscaler's growing non-seat-based revenue, cited by CFO Kevin Rubin as a meaningful contributor in Q4, suggests the company is making progress in broadening its commercial model beyond per-user licensing.
The guidance deceleration from 25% to approximately 17% will attract scrutiny. Enterprise security budgets remain under pressure in a cautious macro environment, and the sales productivity improvements Rubin highlighted will need to be sustained as the company pushes into larger and more complex deals. The record large-deal activity reported for Q4 is encouraging, but deal slippage in enterprise software is a consistent risk when sales cycles lengthen.