Zscaler beat its earnings estimates. The stock dropped 25% anyway. Welcome to a market where what you did last quarter matters far less than what you promise for the next one.
The cybersecurity giant reported fiscal Q3 2026 results on May 26 that looked solid on paper: adjusted earnings per share of $1.08, topping analyst expectations, paired with 25% year-over-year revenue growth. But investors weren’t buying the backward-looking numbers. They were selling the forward-looking ones.
The guidance gap that triggered the selloff
Here’s where things fell apart. Zscaler projected fourth-quarter revenue in the range of $875 to $878 million. Consensus estimates had landed between $878.6 million and $950 million.
The company did raise its full-year annual recurring revenue guidance slightly, targeting roughly 24% growth. But that minor upgrade came with a significant asterisk: Zscaler simultaneously lowered its free cash flow margin expectations, citing increased capital expenditure. In English: the company expects to grow a little faster, but it’s going to cost more to get there. Margins are compressing.
