Three months ago, Zscaler lost nearly a third of its market value in a single session. On May 27, the stock fell 31.5% after an earnings report and an early fiscal 2027 outlook that pointed to annual recurring revenue growth in the mid-to-high teens, alongside disclosure that two sales leaders had recently departed. The episode handed short-sellers a clean story: leadership instability, decelerating growth, a company losing its edge to better-positioned rivals.
Thursday’s fiscal fourth-quarter report was a direct rebuttal to that story.
Revenue came in at $898 million, up 25% year over year, with adjusted EPS of $1.19. Non-GAAP operating margin reached a record 24%. Annual recurring revenue rose 25% from a year ago to $3.77 billion. Guidance beat on both lines for Q1 and the full year. For the fiscal first quarter, the company called for $935 million to $939 million in revenue and adjusted EPS of $1.15 to $1.16. Full-year fiscal 2027 revenue guidance of $3.91 billion to $3.94 billion topped consensus, with adjusted EPS of $4.86 to $4.90.
The sales leadership question, the one that caused May’s collapse, has a clearer answer now. Two sales leaders departed last quarter, one a geographic leader and one a vertical leader. The vertical role was backfilled internally, and a new leader has accepted the offer for the geographic position. More relevant to the forward thesis: Q4 marked the highest productivity quarter in the company’s history, and fiscal 2026 was the highest annual sales productivity in four years. That is not a sales organization in freefall.
The AI angle deserves serious attention rather than the usual hand-waving. Security for AI grew over 50% sequentially in Q4. Z-Flex, the company’s flexible consumption offering, generated over $770 million in total contract value in Q4 alone, up more than 60% quarter-over-quarter, and more than $1.7 billion for fiscal 2026. The company exited Q4 with more than 950 Zero Trust enterprises, versus over 700 in Q3. These are not vanity metrics, they reflect a broadening of the revenue base beyond traditional seat-based licensing, which is the durability argument in one number.
The valuation disconnect is real and the peer comparison makes it stark. Zscaler shares are still down for the year even as several cyber peers have held up better. The company trades at a materially lower forward earnings multiple than some large-cap cyber peers, which suggests the market is still assigning Zscaler less execution certainty than it is willing to grant to better-loved names.
The bear case is not gone. Management expects the leadership transition to play out primarily in the first half of fiscal 2027, and that caution is embedded in guidance. Rising capital expenditure requirements tied to AI infrastructure remain a margin headwind into next year. And any renewed stumble in new logo growth, where the new geographic sales leader will need time to ramp, could pressure the stock a second time.
What to watch next. Net new ARR trajectory in Q1 is the single most important data point: it will confirm or undermine the claim that Q4’s record productivity survived the leadership gap. Watch also whether AI-specific bookings cross $200 million annualized, the threshold where they begin mattering to full-year revenue growth rather than serving only as a future signal.
The stock gave back most of May’s crash and still sits below where it started the year, against a quarter that delivered a record margin, a guidance beat, and evidence that sales productivity held up without the departed executives. The market’s skepticism was earned. Whether it is still warranted is a different question.
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