Zscaler (ZS) offered more clarity on contribution from its Red Canary acquisition versus its core operations, but despite a better outlook, the improvement in organic growth was not enough to fully ease investor concerns, Morgan Stanley said Friday.

Zscaler has captured about 50% of secure access service edge, or SASE deals. As SASE adoption grows, Morgan Stanley believes Zscaler can emerge as a third platform in the cybersecurity market.

However, for that thesis to hold, the firm believes there should be less deceleration in the core business, which has been ongoing since the last two quarters.

The analysts said they see stock weakness as a buying opportunity, as the current valuation does not fully reflect the company's platform strength and competitive edge.

Morgan Stanley expects 2026 annual recurring revenue of $3.74 billion, up nearly $30 million from the prior forecast, primarily driven by Red Canary ARR expectations rising to $130 million as the company sees better renewals.

Morgan Stanley maintained an overweight rating on Zscaler but lowered the price target to $200 from $305.

Shares of the company were down more than 14% in recent Friday trading.

Price: 141.47, Change: -25.89, Percent Change: -15.47