Zscaler's Revenue Soars 25.5% Amidst Acquisition-Driven Cash Burn

Ticker: ZS · Form: 10-Q · Filed: 2025-11-25T00:00:00.000Z

Sentiment: mixed

Topics: Cloud Security, Cybersecurity, SaaS, Zero Trust, Acquisitions, Revenue Growth, Net Loss

Related Tickers: ZS, PANW, CRWD, NET

TL;DR

**ZS is burning cash on acquisitions and R&D to fuel growth, but the market needs to see profitability soon to justify the spend.**

AI Summary

Zscaler, Inc. reported a net loss of $11.615 million for the three months ended October 31, 2025, a slight improvement from the $12.051 million net loss in the same period last year. Revenue significantly increased by 25.5% to $788.112 million from $627.955 million year-over-year, demonstrating strong top-line growth. Gross profit also rose to $603.359 million from $486.493 million. However, operating expenses climbed to $639.721 million, up from $517.160 million, driven by increased sales and marketing ($373.562 million vs. $306.087 million) and research and development ($200.498 million vs. $154.254 million). The company's cash and cash equivalents decreased substantially to $1.338 billion from $2.389 billion at July 31, 2025, primarily due to $672.780 million in payments for business acquisitions and $896.388 million in purchases of short-term investments. Goodwill increased to $994.463 million from $417.730 million, reflecting recent acquisitions. Zscaler continues to invest heavily in growth and strategic acquisitions, impacting short-term profitability but expanding its cloud security platform.

Why It Matters

Zscaler's robust revenue growth of 25.5% signals strong demand for its Zero Trust cloud security platform, crucial for investors looking for top-line expansion in the competitive cybersecurity market. However, the significant cash outflow of $672.780 million for business acquisitions and increased operating expenses, particularly in sales and marketing, indicate aggressive investment that is currently impacting net income and cash reserves. This strategy could either solidify Zscaler's market leadership against competitors like Palo Alto Networks and CrowdStrike or strain its financial flexibility if integration and ROI are not realized. Employees may see continued expansion, while customers benefit from an enhanced platform, but the market will scrutinize the long-term profitability of these growth initiatives.

Risk Assessment

Risk Level: medium — The risk level is medium due to significant cash used in investing activities, totaling $1.502 billion for the quarter, primarily driven by $672.780 million in payments for business acquisitions and $896.388 million in purchases of short-term investments. While revenue growth is strong at 25.5%, the company continues to report a net loss of $11.615 million, indicating that aggressive spending on growth and acquisitions is not yet translating into profitability, which could pressure future liquidity and investor confidence.

Analyst Insight

Investors should closely monitor Zscaler's upcoming earnings calls for details on the performance and integration of recent acquisitions, particularly how they contribute to future revenue and, more importantly, profitability. While the 25.5% revenue growth is positive, the substantial cash burn from acquisitions and R&D suggests a 'growth at all costs' strategy; investors should look for clear pathways to improved net income and free cash flow generation in subsequent quarters before increasing their position.

Financial Highlights

debt To Equity
2.28
revenue
$788.112M
operating Margin
-4.61%
total Assets
$6.503B
total Debt
$1.699B
net Income
$(11.615)M
eps
N/A
gross Margin
76.55%
cash Position
$1.338B
revenue Growth
+25.5%

Revenue Breakdown

SegmentRevenueGrowth
Total Revenue$788.112M+25.5%

Key Numbers

Key Players & Entities

FAQ

What were Zscaler's revenues for the quarter ended October 31, 2025?

Zscaler's revenues for the three months ended October 31, 2025, were $788.112 million, representing a 25.5% increase from $627.955 million in the same period of 2024.

Did Zscaler achieve profitability in the latest quarter?

No, Zscaler reported a net loss of $11.615 million for the three months ended October 31, 2025, a slight improvement from the $12.051 million net loss in the prior year's quarter.

How much cash did Zscaler use for business acquisitions?

Zscaler used $672.780 million in cash for business acquisitions, net of cash acquired, during the three months ended October 31, 2025.

What was the change in Zscaler's cash and cash equivalents?

Zscaler's cash and cash equivalents decreased by $1.051 billion, from $2.389 billion at July 31, 2025, to $1.338 billion at October 31, 2025.

What are Zscaler's primary operating expenses?

Zscaler's primary operating expenses for the quarter were sales and marketing at $373.562 million, research and development at $200.498 million, and general and administrative at $65.661 million.

How does Zscaler's investment in R&D compare year-over-year?

Zscaler's research and development expenses increased to $200.498 million for the three months ended October 31, 2025, up from $154.254 million in the same period of 2024, indicating continued investment in product development.

What is Zscaler's strategy regarding acquisitions?

Zscaler's strategy involves significant payments for business acquisitions, as evidenced by the $672.780 million spent in the quarter, aimed at expanding its cloud platform and capabilities, including potential AI and machine learning enhancements.

What are the key risks highlighted in Zscaler's 10-Q?

Key risks include the impact of macroeconomic and geopolitical events, increased competition, the ability to maintain platform security, and the successful integration of acquisitions, all of which could affect future financial performance.

How does Zscaler's stock-based compensation impact its financials?

Stock-based compensation expense was $188.593 million for the quarter, a significant non-cash expense that contributes to the reported net loss and can dilute existing shareholders through increased share count.

What is Zscaler's business model?

Zscaler operates on a software-as-a-service (SaaS) business model, selling subscriptions to customers for access to its cloud platform and related support services, focusing on Zero Trust principles for secure access.

Risk Factors

Industry Context

The cloud security market continues to experience robust growth, driven by digital transformation and increasing cyber threats. Zscaler operates in a highly competitive landscape, facing both established security vendors and specialized cloud-native players. Key trends include the shift towards Zero Trust architectures, secure access service edge (SASE) adoption, and the need for integrated security platforms.

Regulatory Implications

Zscaler's operations are subject to various data privacy regulations globally, such as GDPR and CCPA. Ensuring compliance with these evolving regulations is critical to avoid penalties and maintain customer trust. Cybersecurity regulations are also becoming more stringent, requiring continuous vigilance and investment in security measures.

What Investors Should Do

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Glossary

Goodwill
An intangible asset that arises when a company acquires another company for a price greater than the fair value of its identifiable net assets. It represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and recognized. (The significant increase in goodwill from $417.730M to $994.463M indicates substantial value attributed to recent acquisitions, highlighting Zscaler's growth strategy through M&A.)
Deferred Revenue
Revenue that has been received by a company but not yet earned. For subscription-based businesses like Zscaler, this represents payments received for services that will be delivered in the future. (Deferred revenue is a key indicator of future revenue. The decrease from $2.054B to $1.946B in current deferred revenue suggests a potential slowdown in new bookings or a shift in contract terms, though noncurrent deferred revenue remains substantial.)
Stock-based Compensation Expense
A non-cash expense recognized for equity awards granted to employees, such as stock options and restricted stock units. It reflects the cost of compensating employees with equity. (Zscaler reported $188.593M in stock-based compensation expense for the quarter, a significant cost that impacts net income and can lead to dilution for shareholders.)
Operating Lease Right-of-Use Assets
An asset representing the lessee's right to use an underlying leased asset for the lease term. This is recognized under accounting standards that require operating leases to be reflected on the balance sheet. (The increase in these assets from $89.772M to $127.457M suggests an expansion in the company's leased facilities or equipment, likely to support its growing operations.)
Accumulated Deficit
The cumulative net losses of a company since its inception that have not been offset by net income. It represents the total losses incurred that have reduced retained earnings. (Zscaler's accumulated deficit increased to $(1.201)B from $(1.189)B, reflecting ongoing net losses despite revenue growth, a common characteristic of high-growth technology companies reinvesting heavily.)

Year-Over-Year Comparison

Revenue increased by a strong 25.5% year-over-year to $788.112 million, demonstrating continued top-line momentum. However, the net loss slightly widened to $(11.615) million from $(12.051) million, indicating that profitability remains a challenge despite revenue growth. Operating expenses saw a significant increase, particularly in sales and marketing and R&D, reflecting continued investment in growth. The company's cash position decreased substantially due to significant investments in acquisitions and short-term investments, while goodwill more than doubled, highlighting a shift towards inorganic growth.

Filing Stats: 4,459 words · 18 min read · ~15 pages · Grade level 19.1 · Accepted 2025-11-25 16:13:20

Key Financial Figures

Filing Documents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1.

Financial Statements (unaudited)

Financial Statements (unaudited) 3 Condensed Consolidated Balance Sheets as of October 31, 2025 and July 31, 2025 3 Condensed Consolidated Statement of Operations for the Three Months Ended October 31, 2025 and 2024 4 Condensed Consolidated Statement of Comprehensive Loss for the Three Months Ended October 31, 2025 and 2024 5 Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended October 31, 2025 and 2024 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2025 and 2024 7 Notes to Unaudited Condensed Consolidated Financial Statements 8 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 31 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 49 Item 4.

Controls and Procedures

Controls and Procedures 51

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 52 Item 1A.

Risk Factors

Risk Factors 52 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 91 Item 5. Other Information 91 Item 6. Exhibits 92

Signatures

Signatures 93 Table of Contents SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding our financial outlook and market positioning. These forward-looking statements are made as of the date they were first issued and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "would," "project," "plan," "expect," and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following: the impact of macroeconomic and geopolitical events, developments and conditions on our business; our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses (including changes in sales and marketing, research and development and general and administrative expenses) and our ability to achieve, and maintain, future profitability; market acceptance of our cloud platform; the effects of increased competition in our markets and our ability to compete effectively; our ability to maintain the security and availability of our cloud platform; our ability to maintain and expand our customer base, including by attracting new customers; our ability to develop new solutions or enhancements to our existing solutions, including artificial intelligence and machine learning capabilities, and bring them to market in a timely manner; market acceptance of any new solutions or enhancements to our existing solutions; anticipated trends, growth rates and challenges in our business and i

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item. 1 Financial Statements ZSCALER, INC. Condensed Consolidated Balance Sheets (in thousands, except per share amounts) (unaudited) October 31, 2025 July 31, 2025 Assets Current assets: Cash and cash equivalents $ 1,338,195 $ 2,389,023 Short-term investments 1,983,077 1,183,386 Accounts receivable, net 530,487 992,181 Deferred contract acquisition costs 182,563 180,819 Prepaid expenses and other current assets 171,639 148,881 Total current assets 4,205,961 4,894,290 Property and equipment, net 542,255 543,377 Operating lease right-of-use assets 127,457 89,772 Deferred contract acquisition costs, noncurrent 322,556 328,722 Acquired intangible assets, net 215,290 47,323 Goodwill 994,463 417,730 Other noncurrent assets 95,105 98,674 Total assets $ 6,503,087 $ 6,419,888 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 48,400 $ 46,906 Accrued expenses and other current liabilities 107,510 93,984 Accrued compensation 135,234 181,807 Deferred revenue 1,946,191 2,054,417 Operating lease liabilities 68,399 52,497 Total current liabilities 2,305,734 2,429,611 Convertible senior notes 1,699,871 1,700,727 Deferred revenue, noncurrent 405,113 413,609 Operating lease liabilities, noncurrent 65,771 43,352 Other noncurrent liabilities 44,270 33,316 Total liabilities 4,520,759 4,620,615 Commitments and contingencies (Note 11) Stockholders' Equity Preferred stock; $ 0.001 par value; 200,000 shares authorized as of October 31, 2025 and July 31, 2025; no shares issued and outstanding as of October 31, 2025 and July 31, 2025 — — Common stock; $ 0.001 par value; 1,000,000 shares authorized as of October 31, 2025 and July 31, 2025; 159,468 and 158,301 shares issued and outstanding as of October 31, 2025 and July 31, 2025, respectively 159 159 Additional paid-in capital 3,175,453 2,980,591 Accumulated other comprehensive income 7,889 8,081 Accumulated deficit ( 1,201,173 ) ( 1,189,558

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