Zscaler Q2 Earnings Beat Reinforces Growth Amid Margin Scrutiny

What happened

Zscaler has established scaled leadership in Zero Trust cloud security with strong enterprise penetration and cash generation, as highlighted in the DeepValue report. In Q2 2026, the company reported 26% year-over-year revenue growth, surpassing analyst estimates and raising its full-year outlook due to robust customer momentum. This performance aligns with the report's emphasis on monitoring execution against FY26 guidance for ARR and revenue growth. However, underlying challenges such as persistent GAAP losses and gross margin pressure, noted in the DeepValue report, remain unaddressed in the news. Investors must therefore balance the positive growth signals with ongoing financial health concerns.

Implication

Investors should view the Q2 results as a positive indicator of Zscaler's execution and demand in the Zero Trust market, reinforcing the BUY thesis. The raised full-year outlook suggests management confidence in continued growth, potentially driven by strategic initiatives like AI Guard and Red Canary integration. However, the DeepValue report cautions about persistent GAAP losses and gross margin erosion, which could limit profitability if not stabilized. Monitoring free cash flow margin and competitive responses will be essential to assess if growth translates into durable financial strength. Overall, this news bolsters the investment case but highlights the importance of vigilance on margin trends and execution risks.

Thesis delta

The earnings report strengthens the BUY thesis by demonstrating execution above expectations and customer momentum, affirming growth visibility. No major shift is required, but it reinforces the need to closely monitor margin trajectories, as any sustained deterioration could pressure the investment case despite strong revenue performance.