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Call sheet · Q4'25

Zscaler (ZS)

Q4'25 earnings call · held 2025-09-02 · compared with the Q3'25 call · management-credibility review
3/12
Disclosure score
1 high, 4 medium, 2 low flags
Financial quality
Bottom line
Z Flex is the real story - $100M TCV with 50% sequential growth shows Zscaler can still drive big deals, but the shift to flexible contracting suggests customers are more cautious about committing upfront. The binding constraint is margin expansion - despite 22% revenue growth, operating margins stayed flat at 22%, and new products are being 'optimized for go-to-market rather than margins.' Jay's most revealing quote: when asked about Zero Trust Everywhere unit economics, he pivoted to talking about 'vision' and 'strategic partnerships.' Classic deflection when the numbers don't look good. My view changes if they start disclosing Z Flex revenue conversion rates and Zero Trust customer economics - transparency would signal confidence in the unit economics they're currently hiding.

The 30-second version

  • Z Flex is the sleeper story - $100M TCV in Q4, 50% sequential growth, but it's masking slowing organic billings velocity
  • Zero Trust Everywhere customer count blew past their own target (350 vs 390 goal), but they're hiding the economics
  • AI security demand is real but monetization is still 'early stage' - classic Zscaler over-promising

What changed this quarter

MetricQ3'25Q4'25Change
Revenue$678M Q3 (+23% YoY)$719M Q4 (+21% YoY)Sequential acceleration but YoY deceleration
ARR~$2.9B Q3 (+23% YoY)>$3B Q4 (+22% YoY)100 bps deceleration, hit $3B milestone
Gross Margin80.3% Q379.3% Q4100 bps sequential decline due to gov hardware deal
Operating Margin~22% Q322.1% Q4Essentially flat despite scale
RPO~$5B Q3 (+30% YoY)$5.8B Q4 (+31% YoY)100 bps acceleration in contracted backlog
Free Cash Flow Margin18% Q324% Q4600 bps sequential improvement
$1M+ ARR Customers642 Q3664 Q422 net adds, slowing pace
Zero Trust Everywhere Customers>210 Q3>350 Q467% sequential growth, beat 390 target early
Data Security ARR~$350M Q3~$425M Q4$75M sequential add, strong momentum
SecOps ARR Growth120% YoY Q385% YoY Q43500 bps deceleration despite Red Canary hype

Accountability tracked

7 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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