Cloud security platform Zscaler (NASDAQ: ZS) reported Q2 CY2026 results beating Wall Street’s revenue expectations, with sales up 24.9% year on year to $898.2 million. Guidance for next quarter’s revenue was better than expected at $937 million at the midpoint, 1% above analysts’ estimates. Its non-GAAP profit of $1.19 per share was 9.2% above analysts’ consensus estimates.

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“AI represents one of the most significant opportunities in Zscaler's history. By connecting users, workloads, branches, and now agents directly to the applications they need without placing them on the network, we are uniquely equipped to help companies both combat the threats created by agentic AI and securely deploy AI agents and models,” said Jay Chaudhry, CEO, Chairman and Founder of Zscaler. “Our continued innovation across Zero Trust SASE, Agentic SecOps, Data Security, and Security for AI is driving increased platform adoption and creating new avenues for growth, as reflected in our strong Q4 results. As AI becomes foundational to how organizations operate, we are well positioned to extend our leadership as the cybersecurity platform for the AI era.”

Company Overview

Pioneering the "zero trust" approach that has fundamentally changed enterprise network security, Zscaler (NASDAQ: ZS) provides a cloud-based security platform that connects users, devices, and applications securely without traditional network-based security hardware.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Zscaler’s sales grew at an exceptional 37.9% compounded annual growth rate over the last five years. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Zscaler’s annualized revenue growth of 24.4% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Zscaler reported robust year-on-year revenue growth of 24.9%, and its $898.2 million of revenue topped Wall Street estimates by 2.4%. Company management is currently guiding for a 18.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 16.2% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above average for the sector and suggests the market is baking in some success for its newer products and services.

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Annual Recurring Revenue

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Zscaler’s ARR punched in at $3.77 billion in Q2, and over the last four quarters, its growth was fantastic as it averaged 25.2% year-on-year increases. This performance aligned with its total sales growth and shows that customers are willing to take multi-year bets on the company’s technology. Its growth also makes Zscaler a more predictable business, a tailwind for its valuation as investors typically prefer businesses with recurring revenue.

Customer Acquisition Efficiency

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

Zscaler is quite efficient at acquiring new customers, and its CAC payback period checked in at 35.5 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

Key Takeaways from Zscaler’s Q2 Results

We were impressed by Zscaler’s revenue and adjusted operating income beats in the quarter. We were also glad its EPS guidance for the next quarter and the upcoming full year both trumped Wall Street’s estimates. Overall, this print was very good. The stock traded up 8.3% to $193.56 immediately after reporting.

Sure, Zscaler had a solid quarter, but if we look at the bigger picture, is this stock a buy? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).