TLDR

  • Zscaler reported Q2 FY2026 adjusted EPS of $1.01 and revenue of $816M, exceeding expectations for both metrics.
  • Despite the positive earnings, the stock declined 9% in Friday’s pre-market trading.
  • Full-year EPS guidance was set at $3.99–$4.02, surpassing the $3.92 consensus estimate.
  • The stock has decreased 26% since the start of the year, indicating wider uncertainty in software company valuations.
  • CFO Kevin Rubin highlighted that the company is performing at a “Rule-of-62,” significantly above the Rule-of-40 benchmark.

Zscaler $ZS delivered a strong fiscal second-quarter performance, yet its stock price fell regardless. This situation encapsulates the current state of the software market.

The cybersecurity firm announced adjusted earnings of $1.01 per share, beating the Wall Street forecast of $0.89 by $0.12. Revenue reached $815.8 million, a 26% increase from the previous year and above the $798 million consensus.

In spite of these results, the stock decreased approximately 9% during pre-market activity on Friday.

ZS Stock Card

This concluded a volatile week. ZS shares fell 10% on Monday amid AI-driven concerns affecting the broader market. They then recovered 17% over the following three days before the earnings release on Thursday caused another decline.

For the third quarter of FY2026, Zscaler provided adjusted EPS guidance of $1.00 to $1.01, higher than the $0.95 consensus. Revenue is expected to be in the range of $834 million to $836 million, slightly above the $831.9 million estimate.

The company increased its full-year FY2026 guidance to adjusted EPS of $3.99–$4.02, exceeding the previous consensus of $3.82. Full-year revenue is now projected to be between $3.309 billion and $3.322 billion, a modest increase over the $3.3 billion estimate.

CEO Jay Chaudhry positioned the company in relation to AI, stating that organizations speeding up their AI implementation are utilizing Zscaler’s platform to protect AI-driven and agentic workflows.

He described Zscaler as the “cybersecurity platform for the AI age” and said its Zero Trust platform is ideally suited to manage the speed and scale of AI and agentic workflows.

Rule-of-62

CFO Kevin Rubin emphasized a key efficiency measure. He stated the company is operating at a “Rule-of-62” for the fiscal year to date.

This metric blends revenue growth and profit margin. The Rule-of-40 is the common benchmark for successful software firms — Zscaler is performing substantially better than this standard.

A Rough Year for ZS

Prior to the earnings report, the stock had already fallen 26% in 2026. The post-earnings drop increases the pressure on a stock that has had a difficult year.

The volatility this week illustrates the current sentiment among software investors. A 10% fall, a 17% recovery, followed by another significant drop after a genuine earnings beat — the market has clearly not settled on how to value these companies.

The third-quarter revenue outlook of $834–$836 million and EPS of $1.00–$1.01 still exceeds analyst projections.