Zscaler closed fiscal 2026 with stronger-than-expected revenue, recurring-revenue growth and profitability as demand for cloud-based cybersecurity increasingly intersects with the rapid adoption of artificial intelligence. The results give the company a stronger starting point for fiscal 2027, although the outlook also indicates a moderation in growth from the 25% expansion achieved in fiscal 2026.

Revenue and ARR Exceed Expectations

Zscaler reported $898.2 million in fourth-quarter revenue, an increase of 25% from the same period a year earlier and above its prior guidance of $875 million to $878 million. Adjusted earnings per share reached $1.19, compared with $0.89 a year earlier and above the approximately $1.09 analyst estimate shown in the supplied earnings data.

Annual recurring revenue, a critical indicator for subscription-based cybersecurity businesses, also increased 25% to $3.77 billion. Net new ARR reached $246 million during the quarter. Excluding $141 million of ARR contributed by the Red Canary acquisition, ARR still grew 20% to $3.63 billion, while net new ARR increased 17%.

The company also reported deferred revenue of $2.93 billion, up 19% year over year. That backlog of contracted revenue provides visibility into future sales, although the slower expected ARR growth rate in fiscal 2027 suggests that Zscaler’s expansion is likely to become more measured.

Record Margin Expansion Strengthens the Earnings Profile

Profitability improved materially during the quarter. Zscaler generated $218.4 million in non-GAAP operating income, representing a record 24% operating margin compared with 22% a year earlier. Non-GAAP net income increased to $198.2 million from $146.7 million, while GAAP net loss narrowed sharply to $3.4 million from $17.6 million.

The full-year figures were also strong. Fiscal 2026 revenue increased 25% to $3.35 billion, while non-GAAP operating income reached $767.1 million, or 23% of revenue. Free cash flow totaled $779.1 million, equivalent to a 23% margin, although fourth-quarter free cash flow declined to $60.8 million from $171.9 million a year earlier as capital expenditures and internal-use software spending increased substantially.

This divergence is important. Zscaler is generating significant annual cash flow, but its investment requirements are increasing as it builds infrastructure and capabilities for the next phase of AI-driven cybersecurity.

AI Becomes a Central Growth and Restructuring Priority

Zscaler is positioning itself as a cybersecurity platform for the AI era, arguing that the emergence of AI agents creates both new security threats and new demand for secure AI deployment. Its strategy encompasses Zero Trust SASE, Agentic SecOps, Data Security and Security for AI, with management pointing to increasing contributions from non-seat-based products, Z-Flex and large enterprise contracts.

The company has simultaneously committed to reducing worldwide headcount by approximately 3%, with expected restructuring charges of $30 million to $33 million, primarily related to severance and benefits. Management said the purpose is to reallocate resources and create additional capacity for AI and growth initiatives rather than simply reduce spending.

For fiscal 2027, Zscaler expects revenue of approximately $3.908 billion to $3.938 billion, representing growth of 16.6% to 17.5%. ARR is projected at $4.396 billion to $4.426 billion, while non-GAAP operating income is expected to reach $924 million to $932 million. The company also forecasts a free-cash-flow margin of approximately 23% to 23.5%.

Going forward, the key question is whether Zscaler can sustain high-teens growth while continuing to expand margins and fund its AI strategy. Investors will be watching ARR growth, large-deal activity, adoption of non-seat-based products, AI-security demand and free cash flow closely. The company’s ability to convert rising AI-related cybersecurity requirements into recurring revenue will be particularly important as competition intensifies across the cloud-security and SASE markets.