• The company's Zero Trust and AI security solutions drove robust demand.
• The company also noted that it has begun adopting a reduced adjusted tax rate of 21%, effective from the first quarter, down from the previous 23% rate, to align with the enactment of the“One Big Beautiful Bill Act.”
• Year-to-date, Zscaler stock has gained over 60%.

Zscaler, Inc. (ZS) shares dropped nearly 8% to $266.90 in the extended session after the cybersecurity vendor's fiscal first-quarter results did not go down well with investors. Still, retail optimism improved following the quarterly print. 

Year-to-date, Zscaler stock has gained over 60%, potentially making investors cautious despite the first-quarter beat.

Zscaler's Q1 Numbers

-$0.96 vs. $0.86 consensus (Fiscal)

-$788.11 million vs. $773.86 million consensus

Annual recurring revenue (ARR), a key metric for software companies that shows predictable subscription revenue over the next year, climbed 26% year over year (YoY) to $3.20 billion. Revenue growth (26% YoY) and ARR growth accelerated from the previous quarter.

The growth rate of deferred revenue increased to 32% from 30% in the fourth quarter.

CEO Jay Chaudry said,“Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform. By integrating the recently acquired SPLX technology with our comprehensive AI Security offerings, we are expanding our best-in-class AI Security solutions to solve emerging security challenges.”

The company also noted that it has begun adopting a reduced adjusted tax rate of 21%, effective from the first quarter, down from the previous 23% rate, to align with the enactment of the“One Big Beautiful Bill Act.”

Zscaler's Outlook

The company raised its full-year ARR to a range of $3.698 billion to $3.718 billion, and raised its revenue and adjusted EPS outlook for the year as well.

What Retail Feels About Zscaler's Q1

On Stocktwits, retail sentiment toward Zscaler stock improved to 'extremely bullish' as of late Tuesday, up from 'bullish' a day earlier. Retail buzz also picked up pace to 'extremely high' levels, with the stock stream witnessing over 2,400% increase in message volume leading up to late Tuesday.

A  bullish watcher remained confident of a green close on Wednesday and said they would buy more shares.

Another user said the post-earnings stock reaction did not make sense.“Killer quarter, buy the dip.”

Source: Koyfin

The forward Price/Earnings (P/E) multiple is at 75.8 compared to the IT sector's 27.8 (data from Yardeni Research). That said, sell-side analysts are optimistic about further gains. According to Koyfin, the average price target for the stock is $331.24, implying roughly 14% upside from current levels.

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