Zscaler Nears $3B ARR Goal: Can It Maintain the Momentum Through FY25?

Zscaler ZS ended third-quarter fiscal 2025 with $2.9 billion in annual recurring revenues (ARR), representing the third consecutive quarter of 23% year-over-year growth. The management stated that it remains confident in achieving its $3 billion ARR target by the end of the fourth quarter of fiscal 2025.

One key driver is the Z-Flex purchasing program launched during the third quarter, which simplifies procurement and allows customers to scale adoption of Zscaler’s platform. Z-Flex generated $65 million in TCV bookings in its first quarter, with large clients like a Fortune 500 tech firm increasing their ARR by more than 40% to nearly $19 million.

Zscaler is also leaning heavily into three strategic pillars – Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations (its artificial intelligence [AI]-driven initiative). Together, these areas now account for nearly $1 billion in ARR.

The standout here is Zero Trust Everywhere. Zscaler ended the third quarter with more than 210 enterprise customers in this segment, up 60% from the previous quarter. ZS intends to triple the customer base for this offering from 130 to over 390 by the end of fiscal 2026, and it’s well on track to do just that.

Moreover, Zscaler ended the quarter with 642 customers generating more than $1 million in ARR and 3,363 customers with ARR over $100,000. Its 114% trailing 12-month net retention rate shows continued expansion within existing accounts. With a strong platform, disciplined execution, and growing demand for AI and Zero Trust capabilities, Zscaler appears well-positioned to drive the next phase of ARR growth.

How ZS’ ARR Growth Stacks Up Against Rivals

Competitors like CyberArk CYBR and SentinelOne S are also gaining ground through platform expansion and AI innovation. 

CyberArk ended its first quarter of fiscal 2025 with $1.215 billion in ARR, representing a year-over-year increase of 50%. The robust growth was driven by the sustained growth of subscriptions and increased adoption of CyberArk’s identity security platform.

Though a small competitor, SentinelOne’s ARR is also growing rapidly with reaching $948 million at the end of the first quarter of fiscal 2026. This represents a year-over-year rise of 24% fueled by growing adoption of SentinelOne’s AI-first Singularity platform and Purple AI.

ZS’ Price Performance, Valuation and Estimates

Shares of Zscaler have surged 66.3% year to date compared with the Zacks Security industry’s growth of 22%.

ZS YTD Price Performance Chart

From a valuation standpoint, ZS trades at a forward price-to-sales ratio of 15.21, slightly above the industry’s 14.77.

ZS Forward 12 Month P/S Valuation Chart

The Zacks Consensus Estimate for Zscaler’s fiscal 2026 earnings is pegged at $3.18 per share, up by 3.92% over the past 30 days, which implies a 0.31% drop year over year. The consensus mark for fiscal 2027 is also up by 2.01% over the past 30 days at $3.55 per share, indicating a year-over-year increase of 11.86%.

ZS stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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