Skip to content
The Street Brief
The Street Brief
The Street Brief

Welcome back

Sign in to continue reading and managing your briefs.

Forgot password?

Zscaler’s Reset Puts Billings and Deals in Focus

Written by The Street Brief

Technology and Stocks

June 23, 2026

Magnifying glass focusing on a handshake beside a tall stack of contracts, with a small jagged downward arrow in the corner.

Key points

  • Shares fell 32% in one month, putting a valuation reset on the table.
  • Annual recurring revenue reached about $3.5 billion, up 25%, with $166 million net new in Q3.
  • Deferred revenue rose 25% and remaining performance obligations were roughly $6.5 billion, aiding visibility.
  • Full-year free cash flow margin cut to roughly 23% due to higher capital spending.

Zscaler, Inc. ( $ZS Zscaler, Inc. $123.80 ) has gone from momentum favorite to valuation reset candidate. The cloud security vendor’s slide stands out while broader tech sentiment remains constructive. That divergence pushes the debate toward forward demand signals and away from last year’s growth rate.

In the latest session, shares traded near recent lows after a multi-month decline. Recent market data show a 32% one-month drop and deeper year-to-date and one-year losses. From here, the case hinges on billings-like indicators, large-deal activity, and how quickly customers consolidate onto the platform.

What changed in the last results

Zscaler, Inc. reported third-quarter fiscal 2026 results that mixed strong customer engagement with a more measured medium-term outlook. Revenue grew 25% to $850.5 million, and annual recurring revenue reached roughly $3.5 billion, up 25% year over year, with net new ARR of $166 million. Company disclosures also highlighted record non-GAAP operating margin and strength in million-dollar-plus deals.

Backlog and visibility improved. Management cited remaining performance obligations (RPO) near $6.5 billion, with about 46% classified as current, implying healthy near-term conversion. The large-customer base continued to expand, closing the quarter with 748 customers above $1 million in ARR and more than 4,000 above $100,000 in ARR.

Why it matters for the reset

For a stock coming off a steep drawdown, contract and backlog indicators matter more than rear-view revenue. While Zscaler doesn’t publish a formal billings figure, deferred revenue grew about 25% in both the second and third fiscal quarters, and current RPO represented roughly half of total RPO. Together, those data points suggest stable near-term demand even as net new ARR growth normalizes.

Budget scrutiny remains the wild card across software security. Our recent view on spending tightness in data and AI software, AI Data Spending Lifts Software, But Budgets Are Tight, lines up with management comments about elongated reviews and multi-product consolidation. Against that backdrop, Zscaler’s record million-dollar-plus deal pace is an important counterbalance.

Guidance shows a slower lane, not a stall

Management raised full-year revenue and ARR ranges after Q3, but trimmed the free cash flow outlook to about 23% for the year due to higher capital spending. Guidance also implies that net new ARR growth excluding acquisitions is running in the high single digits this year. Looking ahead, leadership indicated ARR and revenue growth could slow to roughly the mid-teens next fiscal year, a more normalized cadence than the prior hypergrowth period.

The mix shift matters. As customers adopt broader zero-trust and data protection bundles, Zscaler can lean on expansion in its installed base. But the market will want to see that backlog converts to revenue at a steady clip while margins hold in the low-to-mid-20s.

Valuation and sentiment after the slide

The reset is visible in the tape and in multiples. Recent figures show one-month performance down 32%, year to date down about 45%, and one year down 59%, with the stock still roughly 63% below its 52-week high. With a market value around $20 billion and a price-to-sales ratio near 16.5, the shares are no longer priced for hypergrowth, but they still assume durable growth and disciplined profitability. That same tension sits at the heart of many software names, as seen in HubSpot’s 23% Growth Meets a 2x Run-Rate Price.

Where the case can break

The bear case centers on budgets and competition. If security spending tightens further or platform consolidation slows, billings-like indicators and net new ARR could remain pressured. Competitive pressure from broad platform vendors in secure access, endpoint, and data security could elongate deal cycles or compress pricing. The trimmed free cash flow outlook also reduces cushion if growth decelerates faster than expected.

Backlog and large-deal signals into earnings

Investors may want to monitor:

  1. Current remaining performance obligations and deferred revenue growth as proxies for billings durability
  2. Net new annual recurring revenue excluding acquisitions
  3. The pace of million-dollar-plus deals and expansion within the largest cohorts
  4. Free cash flow margin versus capital spending needs.

Evidence that Zscaler is deepening adoption beyond access into data and identity adjacencies would support the platform thesis. Weakness in backlog conversion, large-deal cadence, or a step down in margin could challenge it.