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Call sheet · Q3'25

Zscaler (ZS)

Q3'25 earnings call · held 2025-05-29 · compared with the Q2'25 call · management-credibility review
10/12
Disclosure score
1 high, 4 medium, 1 low flags
Financial quality
Bottom line
The real story is Z Flex: $65M TCV in one quarter shows Zscaler finally monetizing their platform lock-in with flexible pricing that increases wallet share. Everyone will focus on the steady 23% ARR growth, but the binding constraint is sales capacity, not demand, which is why they bought Red Canary's go-to-market team for $675M. Management admits 'the more savings customers want, the bigger part of the platform they need to buy,' revealing their cost-takeout strategy drives bigger deals. My view changes if Z Flex contribution disappoints in Q4 or if the massive CapEx jump to 11% of revenue doesn't translate to better infrastructure margins within two quarters.

The 30-second version

  • Z Flex is the real sleeper: $65M TCV in first quarter signals pricing power pivot
  • Third straight quarter of 23% ARR growth at $2.9B scale shows deceleration has stabilized
  • NRR dropped to 114% from 115% despite platform expansion success

What changed this quarter

MetricQ2'25Q3'25Change
Revenue$648M (+23% YoY)$678M (+23% YoY)Sequential growth slowed to 5% vs 3% in Q2
ARR$2.7B (+23% YoY)$2.9B (+23% YoY)Third straight quarter at 23%, no acceleration
RPO$4.6B (+28% YoY)$5.0B (+30% YoY)Acceleration to 30% growth, crossed $5B milestone
Total Calculated Billings$743M (+18% YoY)$785M (+25% YoY)Meaningful acceleration, +700bps YoY growth
Unscheduled Billings Growth25%+ YoYHigh 20% YoYSlight deceleration from 25%+
Dollar-Based NRR115%114%Second consecutive quarterly decline
$1M+ ARR Customers62064222 net adds, steady pace
Operating Margin~22% (+200bps YoY)~22% (flat YoY)No YoY improvement, expansion stalled
Free Cash Flow Margin22%18%400bps sequential decline despite revenue growth
Gross Margin80.4%80.3%110bps YoY decline continues

Accountability tracked

8 new promises made4 narrative shifts flagged6 prior promises scored
Inside the full report
The complete write-up covers the full promise ledger with kept/missed calls, disclosure-quality scoring, the metrics-vanished check, verification items, and the questions to ask next quarter.
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Scores, kept-promise rates, and flags on this site reflect the author's opinion, applying a stated methodology to statements management made on public earnings calls. Informational and educational purposes only - not investment advice, a recommendation, or an offer to buy or sell any security. Sources believed reliable but not guaranteed; the author may hold positions in the securities discussed.

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