ZS Expands Into MDR With Red Canary: Is it the Next Growth Pillar?

Zscaler ZS is anticipated to close the pending acquisition of Red Canary in August 2025. Announced on May 27, the acquisition aims to accelerate the company’s push into Managed Detection and Response (MDR) and also strengthen its Security Operations (SecOps) portfolio. The deal will enable Zscaler to expand into Security Operations Centre (SOC) categories of MDR and Threat Intel. 

Red Canary acquisition will position Zscaler to deliver a fully integrated, AI-powered SOC. With over a decade of MDR expertise, Red Canary helps customers detect and respond to threats ten times faster and with an accuracy of 99.6%. Moreover, Red Canary has been consistently recognised as a Leader in MDR by Forrester Wave, which underscores its strength in this space. 

Combined with Zscaler’s massive amount of high-quality data, processing 500 billion daily transactions and global intelligence from ThreatLabz Security Research team, the integration aims to deliver fast, accurate, and high-quality threat detection and response.

The acquisition timing aligns with Zscaler’s broader SecOps momentum. In the third quarter of fiscal 2025, the company posted year-over-year growth of 120% in its SecOps annual contract value. The acquisition also supports Zscaler’s goal of building an AI-powered SOC of the future. If executed well, Red Canary could make MDR a key pillar of Zscaler’s growth strategy in fiscal 2026 and beyond.

How Competitors Fare Against Zscaler

Zscaler competes with SecOps leaders, such as Palo Alto Networks PANW and CrowdStrike CRWD, which have also expanded their expertise in agentic operations.

Palo Alto Networks launched Cortex XSIAM, its AI-driven SOC platform, which is an upgrade over its traditional SIEM, with significant enhancements like AI-driven analytics, automation and enhanced threat detection and response. Palo Alto Networks is also experiencing solid traction in its Cortex XSIAM, which has witnessed ARR growth of 200% year over year in the third quarter of fiscal 2025.

In the first quarter of fiscal 2026, CrowdStrike introduced Falcon Next-Gen SIEM and Charlotte AI. While Charlotte AI functions as a generative AI security analyst, reducing the support time provided by cybersecurity professionals, CrowdStrike’s Falcon Next-Gen SIEM provides a unified platform for detecting threats, investigating attacks and responding to them.

ZS’s Price Performance, Valuation and Estimates

Shares of Zscaler have surged 73.2% year to date compared with the Security industry’s growth of 25%.

ZS YTD Price Return Performance

From a valuation standpoint, Zscaler trades at a forward price-to-sales ratio of 15.58X, higher than the industry’s average of 14.99X.

ZS Forward 12-Month P/S Ratio

The Zacks Consensus Estimate for Zscaler’s fiscal 2025 earnings implies a year-over-year decline of 0.31%, while for fiscal 2026 earnings implies year-over-year growth of 12.01%. The earnings estimates for fiscal 2025 and fiscal 2026 have been revised upward in the past 60 days and 30 days, respectively. 
 

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

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