Shares in Zscaler Inc. fell more than 9% in late trading today despite the cloud security company reporting beats in its fiscal 2026 second quarter and providing an outlook ahead of expectations, as investors were looking for something more upbeat from the company.

For the quarter that ended on Jan. 31, Zscaler reported adjusted earnings per share of $1.01, up from 78 cents per share in the same quarter of the previous fiscal year, on revenue of $815.8 million, up 26% year-over-year. Both figures came ahead of 77 cents per share and revenue of $798.32 million expected by analysts.

Zscaler’s strong figures were driven by customer growth. The company ‘s annual recurring revenue grew 25% year-over-year in the quarter. to $3.359 billion, with $155.5 million in net new annual recurring revenue during the quarter.

Cash flow from operations came in at $204.1 million, up from $179.4 million in the second quarter of the previous fiscal year, deferred revenue was $2.355 billion, up 25% year-over-year. Zscaler was sitting on $3.513 billion in cash, cash equivalents and short-term investments as of the end of January.

Business highlights in the quarter include Zscaler announcing a range of artificial intelligence security innovations, including Zscaler AI Protect. It’s designed to protect the full spectrum of enterprise AI implementations and to provide end-to-end visibility and governance. The solution allows organizations to discover and manage their shadow AI footprint and offers complementary capabilities, including AI Asset Management, AI Access Security and AI Red Teaming, to perform continuous testing against vulnerabilities.

Although coming just after the end of the quarter, Zscaler announced Feb. 5 that it had acquired browser security company SquareX Ltd. for an undisclosed sum. Zscaler said at the time that the acquisition would help it redefine browser security by allowing organizations to embed lightweight extensions into any browser to provide increased security and eliminate the need for third-party browsers.

“We believe Zscaler is the cybersecurity platform for the AI age — our in-line zero-trust platform is uniquely architected to secure the unprecedented speed and scale of AI and agentic workflows,” Chief Executive Jay Chaudhry said in the company’s earnings release. “Organizations racing to adopt AI are looking to us to provide the security solution they trust and we’re just scratching the surface of this massive future growth opportunity.”

For its fiscal third quarter, Zscaler is expecting adjusted earnings per share of $1 to $1.01 and revenue of $834 million to $836 million. Both forecasts were ahead of the 95 cents per share and revenue of $831.9 million expected by analysts. For its full fiscal year, the company expects adjusted earnings of $3.99 to $4.02 per share and revenue of $3.309 billion to $3.322 billion; analysts had been expecting $3.82 per share and revenue of $3.3 billion.

There were no bad figures in either Zscaler’s quarterly results or outlook, but there was no strong acceleration or big guidance upside either. In a market where some tech and cybersecurity companies are surging, particularly as the AI boom continues apace, the share price drop could simply be a matter of investors not being excited enough by solid but somewhat conservative results and outlook.

Pressure on Zscaler’s share price also comes amid growing pressure on software-as-a-service companies. There’s increasing concern among investors that AI may, in the coming years, replace portions of traditional subscription-based software by enabling enterprises to build more customized, automated and lower-cost solutions in-house.

Photo: Zscaler