Should you sell your Zscaler stock?

Roth Capital Markets analyst Taz Koujalgi maintained a “Neutral” rating and US $215.00 target price on Zscaler (Zscaler Stock Quote, Chart, News, Analysts, Financials NYSE:ZS) after the company delivered an in-line fiscal first-quarter result and modestly raised its full-year outlook.

He said the print met buy-side expectations and that the stock has already moved well ahead of his valuation framework.

Zscaler, founded in 2007 and based in San Jose, provides a cloud-based internet security platform.

Quarterly revenue was US $788-million, up 26% year-over-year and ahead of guidance and consensus. Annual recurring revenue reached US$3.204-billion, also up 26%, implying net-new ARR of about US$189-million. Adjusting for the approximately US$83-million of ARR attributed to the Red Canary acquisition, Koujalgi estimates “organic” NNARR of roughly US$106-million, consistent with management’s comment that organic ARR growth was unchanged from last quarter.

Operating margin was 21.8%, slightly above expectations, and free cash flow came in at US$413-million.

Zscaler raised its fiscal 2026 revenue guide to US$3.282-billion to US$3.301-billion (previously US$3.265-billion to US$3.284-billion) and increased its ARR outlook to US$3.698-billion to US$3.718-billion. Second-quarter revenue guidance of US$797-million to US$799-million was marginally above the Street, though the implied second-quarter NNARR of about US$142-million was slightly below consensus.

Koujalgi reverse-engineered Red Canary’s contribution because Zscaler does not disclose it separately. Based on management’s comment that organic growth was unchanged, he estimates Red Canary now represents roughly US$90-million of ARR and US$28-million of quarterly revenue. He noted the apparent disconnect, ARR lower than revenue, reflects Zscaler’s conservative approach to excluding FY26 renewals from Red Canary ARR, even though revenue from legacy contracts continues to be recognized.

He said Zscaler’s federal business “remains healthy,” with no evidence of competitive displacement during the U.S. government shutdown.

Using Zscaler’s unchanged assumption that Red Canary will end FY26 at US$95-million to US$99-million of ARR, Koujalgi calculates an implied organic ARR guide of US$3.609-billion, or 20% growth. His own modelling suggests total FY26 ARR of US$3.75-billion is achievable under a more optimistic but still reasonable scenario, reflecting stronger NNARR seasonality and consistent 20% organic revenue growth.

Zscaler’s three newer growth pillars, Zero Trust Everywhere, Data Security and AI Security, collectively exceed US$1-billion of ARR. AI Security alone surpassed US$400-million this quarter and is expected to reach US$500-million by the end of fiscal 2026. Data Security ARR is now about US$450-million.

Koujalgi also pointed to strong traction in Z-Flex, with US$175-million in total contract value this quarter, up sharply from US$100-million in FQ4/25. He estimates Z-Flex accounted for roughly 20% of total RPO bookings, versus about 6% in prior quarters.

Zscaler shares closed at US$289.73 on Nov. 25.