SAN JOSE, California, September 3, 2026, 16:30 (EDT) — Zscaler saw an abrupt reversal of a 12% after-hours gain after reporting that its cash-flow margin dropped to 7%.
- Zscaler reached $199 in after-hours trading, rising 11.9% from its closing price of $177.80, before pulling back to $179.80 as of 16:30:15 EDT.
- Fourth-quarter revenue climbed 25%, matching the increase in annual recurring revenue, while ARR excluding Red Canary was up 20%.
- Free-cash-flow margin dropped to 7% from 24% after capital and internal software expenditures totaled $218.5 million.
Zscaler, Inc. NASDAQ:ZS lost much of a 12% after-hours gain on Thursday, as the turnaround highlighted investor worries over the cash outlays tied to its reported growth.
The shares surged to $199 within minutes following the release. By 16:30:15 EDT, the price was at $179.80, a gain of just 1.1% from the closing level Yahoo Finance market data.
Zscaler after-hours reaction
Source: Yahoo Finance, one-minute extended-hours observations. Values are not live-streaming.
The company’s initial reaction was to a solid revenue beat. Fiscal fourth-quarter revenue totaled $898.2 million, marking a 25% increase from the previous year and 2.3% above the top end of its earlier guidance.
Annual recurring revenue totaled $3.771 billion. Of this, Red Canary contributed $141 million, resulting in organic ARR of $3.630 billion and organic growth of 20% Zscaler’s results release.
ARR growth: headline versus underlying
Source: Zscaler fiscal 2026 fourth-quarter results, released September 3, 2026.
Profitability indicators were mixed. The non-GAAP operating margin set a new record at 24%, and the GAAP operating loss decreased to $15.5 million.
Cash conversion declined. Free cash flow dropped by 65% to $60.8 million as capital expenditures and costs for internal-use software almost tripled.
Fourth-quarter cash conversion reset
Free-cash-flow margin fell to 7% from 24%, despite 25% revenue growth.
Source: Zscaler fiscal 2026 earnings release. Bars share a $218.5 million scale.
Chief Executive Jay Chaudhry described artificial intelligence as “one of the most significant opportunities” in Zscaler’s history, linking increased demand to securing AI agents and models.
Chief Financial Officer Kevin Rubin pointed to unprecedented large-deal activity and a rise in sales productivity. Rubin added that growth was further supported by non-seat-based offerings shareholder letter.
Management forecasts first-quarter revenue in the range of $935 million to $939 million, indicating around 19% growth and a non-GAAP operating margin of 23%.
For fiscal 2027, revenue guidance targets $3.923 billion, indicating growth of around 17%. Guidance for ARR also suggests about 17% growth, down from the reported 25% rate in fiscal 2026.
The yearly report highlights the trade-off. Free-cash-flow margin for fiscal 2026 was 23%, a decrease from 27%, as revenue increased by 25% SEC Form 10-K.
Risks are balanced. Red Canary may boost cross-selling opportunities, and data-center spending could decline once deployments are complete. However, weaker organic ARR, integration of acquisitions, and fluctuating capital expenditures could weigh on the valuation. Limited after-hours liquidity may amplify share price swings.
The following focus is on cash conversion. Investors require 17% growth to achieve more consistent free cash flow, rather than a short-lived surge in price.
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