Zscaler (ZS) delivered robust Q3 with "unscheduled" billings growth on improving sales execution, but issued revenue guidance implying a growth deceleration, UBS said in a note emailed Monday.
Zscaler's "unscheduled" billings growth was 28% in Q3, versus 20% and 25% in Q1 and Q2, respectively. For Q4, the company expects revenue growth of 19%, a 3 percentage point deceleration from Q3, sparking a debate over the company's ability to achieve over 20% revenue growth in fiscal 2026, UBS said.
Zscaler's platform story is "hitting its stride" as the company envisions almost $1 billion in annual recurring revenue linked to its zero trust, data security, and artificial intelligence offerings, according to the note.
The company's acquisition of Red Canary, expected to close in August, will add threat detection-specific AI capabilities and talent in the security operations space, analysts noted.
Analysts said they maintained their fiscal 2026 estimates on new booking improvements through fiscal 2025 and the gap between annual recurring revenue and revenue, given typical "deal ramps." Contribution from Red Canary acquisition "still sounds a bit opaque," they added.
The brokerage said it reiterated its buy rating on the stock and increased its price target to $315 per share from $260.
Shares of the company were up 4.5% in recent trading.
Price: 288.03, Change: +12.33, Percent Change: +4.47
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