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Call sheet · Q3'26

Zscaler (ZS)

Q3'26 earnings call · held May 26, 2026 · compared with the Q2'26 call · management-credibility review
5/12
Disclosure score
2 high, 5 medium, 1 low flags
Financial quality
Bottom line
The sleeper story: Red Canary is melting down with 'elevated churn' while management raises ARR guidance, suggesting they're masking a failed acquisition. Yes, they beat and raised, but FY27's 16-17% growth guide implies net new ARR collapsing to mid-single digits, and they're scrambling to replace two departed sales leaders while claiming everything's fine. The binding constraint isn't demand, it's execution: sales disruption, integration failures, and exploding CapEx from component costs. Jay's tell: 'We are not really factoring in any meaningful impact of the new opportunities for Q4,' meaning all that AI talk is next year's story, not this year's revenue. My view changes if Q4 net new ARR exceeds $200M, proving sales disruption is contained.

The 30-second version

  • Red Canary ARR churn masked by upward revision: the 'acquisition win' is actually a disaster in slow motion
  • Two sales leaders gone, CRO Mike Rich's bench suddenly looking thin
  • CapEx exploding from mid to high single digits due to 'memory and processor prices,' pulling forward FY27 spend into Q4

What changed this quarter

MetricQ2'26Q3'26Change
ARR$3.28B (up 26% YoY)$3.50B (up 25% YoY)100 bps deceleration
Net New ARR$156M (up 19% YoY)$166M (up 24% YoY)+500 bps acceleration
Net New ARR ex-Red Canary$139M (up 7% YoY)$153M (up 14% YoY)+700 bps acceleration
Revenue$816M (up 26% YoY)$850M (up 25% YoY)100 bps deceleration
Operating Margin22.2%23.0%+80 bps expansion
Free Cash Flow Margin20.7%16.0%470 bps compression
AI Protect Bookings (LTM)Not disclosed>$100MNew disclosure
Zero Trust Everywhere Customers>550>700+27% QoQ growth
$1M+ ARR Customers728748+2.7% QoQ growth slowing
Z-Flex TCV (Quarter)$290M>$480M+65% QoQ acceleration

Accountability tracked

7 new promises made5 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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