Zscaler Q4 FY25: Solid Growth and Cash Generation Underpin Premium Valuation

What happened

Zscaler’s Q4 FY25 print delivered 21% year-over-year revenue growth with stable margins, reinforcing the company’s ability to scale its Zero Trust platform while maintaining strong cash profitability. The latest earnings review reiterates a Buy rating and frames the trade with a suggested stop at $258, implying roughly a 2:1 to 3.3:1 upside-to-downside profile from current levels. These results sit on top of a strong FY25 foundation that included $2.67 billion in revenue, a 27% free cash flow margin, and annual recurring revenue surpassing $3.0 billion. The balance sheet remains a key support, with a sizable net cash position approaching $2 billion and total cash and short-term investments of roughly $3.6 billion providing ample flexibility for continued product and go-to-market investment. Despite trading at premium valuation multiples, the stock has been outperforming broader software peers as investors increasingly price in durable cybersecurity demand tied to AI and data center growth, as well as Zscaler’s expanding platform (AI Guard, Zscaler Cellular, Red Canary, and public-sector certifications).

Implication

Fundamentally, the combination of low-20s percent revenue growth, robust ARR and RPO, and mid-20s percent free cash flow margins continues to justify a premium multiple relative to security and infrastructure software peers. Tactically, the suggested $258 stop provides a reference level for downside risk management, below which the risk/reward skew that currently favors longs would begin to break down. Given the stock’s outperformance and rich valuation, new money should be phased in on volatility rather than chased, with close attention to ARR, calculated billings, and gross and free cash flow margin trends versus FY26 guidance. Long-only holders should focus on whether new offerings such as AI Guard, Zscaler Cellular, and the Red Canary integration translate into higher platform adoption and larger deal sizes, which are needed to sustain current growth expectations. Any sustained deterioration in cash generation, evidence of pricing pressure from SASE competitors, or material misses against FY26 revenue and ARR targets would warrant reconsidering the Buy stance, as the market is now assigning limited room for execution missteps.

Thesis delta

The new analysis is broadly consistent with our existing BUY thesis, emphasizing that Q4 FY25 performance and guidance underpin durable growth and strong cash generation. The main incremental nuance is a greater acknowledgement that Zscaler’s premium valuation and recent share price outperformance heighten sensitivity to any slowdown, implying more disciplined entry points and stricter risk management (for example, a stop zone around the mid-$250s). Overall conviction in the long-term Zero Trust and AI-driven growth story is unchanged, but monitoring of valuation and execution versus FY26 targets becomes even more central to the investment case.