Zscaler Solid 3Q Execution, Conservative Outlook, FY27 Now Derisked

Research evidence excerpt

Zscaler Solid 3Q Execution, Conservative Outlook, FY27 Now Derisked

transition uncertainty and CapEx step-up. ZS

shared an initial FY27 outlook of 16-17% y/y total ARR and revenue growth. The outlook

fully includes Red Canary (no separate disclosure planned for FY27) and excludes any

price increases. Management noted that the prudence embedded in the FY27 outlook

reflects the sales leadership transition under CRO Mike Rich (two sales leaders departed

this quarter) and uncertainty in the pace of integrated SecOps uptake. ZS clarified that

new logo growth did not factor into the prudence for the outlook, with continued GTM

expansion focus on the lower-end enterprise segment. Given the rising component costs,

FY26 capex is now expected to be high single digit % of revenue in FY26 (from mid

single digit), with FY27 up to 200bps higher as a percentage of revenue. The elevated

CapEx guidance also resulted in a lower FY26 free cash flow margin outlook of 22.8-

23.3% (from 26.5-27%), though gross margins should remain in the 80% range.

• Limited visibility into integrated SecOps uptake. The integrated SecOps solution

(enabled by Red Canary's technology) is expected to be available in FY27, though the

pace of customer uptake is unknown at this stage. Red Canary exited 3Q at $127mm of

ARR, and full year guidance was increased to $137mm from $130mm. Management

noted that Red Canary NNARR should grow at a slower rate than the overall business in

FY27. FY26 Red Canary outperformance was largely mechanical from FY26 renewals

(a unique FY26 treatment where renewals were not recognized until they materialized),

which is not expected to continue in FY27. Management clarified that the Red Canary

acquisition was to primarily drive its agentic technology into the Zscaler platform to