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Call sheet · Q4'26

Zscaler (ZS)

Q4'26 earnings call · held September 3, 2026 · compared with the Q3'26 call · management-credibility review
4/12
Disclosure score
1 high, 3 medium, 2 low flags
Financial quality
Bottom line
The market will focus on the 25% ARR growth headline, but the real story is the **emergence of a high‑margin AI‑security revenue stream that is only now being disclosed** (Security for AI bookings +50% QoQ). The **binding constraint** is the escalating CapEx tied to memory and storage price inflation, which is already eating into free cash flow and could choke margin expansion in FY27. Management’s shift from “AI is changing cybersecurity now” to “early days” and the new, denominator‑less AI metric signals that the AI tailwind is still being built, not yet monetized. **My view changes if the AI‑security bookings don’t translate into a >10% ARR contribution by FY27 or if CapEx stays above 20% of revenue for two consecutive quarters.**

The 30-second version

  • Sleeper: AI‑Security consumption is exploding, but it’s hidden in a new “bookings” metric
  • Headline: 25% ARR growth looks strong, but the real story is a slowing organic engine
  • Red flag: Management stopped reporting NRR and DSO trends, and pivots to “product vision” when asked about churn

What changed this quarter

MetricQ3'26Q4'26Change
Revenue$850 M, +25% YoY$898 M, +25% YoY+$48 M (+5.6%)
Non‑GAAP Operating Margin23.0% YoY24.3% YoY [+220 bps]+1.3 pts
Net New ARR (incl. Red Canary)$166 M, +24% YoY$246 M, +24% YoY+$80 M
Net New ARR (ex‑Red Canary)$153 M, +14% YoY$232 M, +17% YoY+$79 M
CapEx$42 M (5% of revenue)$200 M (22% of revenue)+$158 M, +17 pts of revenue
Free Cash Flow Margin16% Q3 (29% YTD)23% Q4 (down from 27% YoY)-4 pts YoY
Remaining Performance Obligation (RPO)$6.5 B, +30% YoY$7.4 B, +27% YoY+$0.9 B
Zero Trust Everywhere Enterprises700 enterprises Q3950 enterprises Q4+250 enterprises (+36%)
Z‑Flex TCV Q4$480 M Q3$770 M Q4, +60% QoQ+$290 M
Operating Cash Flow$198 M Q3$279 M Q4+$81 M

Accountability tracked

1 new promise made
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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