Zscaler Soars as Investors Ignore Piper Sandler Downgrade

• Zscaler (ZS) shares rose more than 8% in midday trading after reporting fiscal Q3 adjusted earnings of 84 cents per share on $678 million in revenue, beating analyst expectations of 76 cents per share on $667 million.
• Piper Sandler downgraded Zscaler to ‘Neutral’ from ‘Overweight’ with a $260 price target, citing limited upside potential despite strong Q3 performance and a less challenging billings outlook for the year’s second half.
• The company’s outperformance underscores its strength in the cloud security market, driven by its zero-trust architecture amid growing demand for cybersecurity solutions.

Zscaler (ZS), a leading cloud security provider, saw its shares surge more than 8% to $271.56 in midday trading on Friday, bucking the broader cybersecurity sector’s underperformance with a robust fiscal third-quarter performance for the period ended April 30. The company reported adjusted earnings of 84 cents per share on revenue of $678 million, surpassing analyst expectations of 76 cents per share on revenue of $667 million, while also exceeding its own guidance. This strong showing highlights Zscaler’s ability to capitalize on growing demand for cloud-based security solutions amid rising cyber threats, driven by its zero-trust architecture that secures enterprise networks in an increasingly remote and digital landscape.

Despite the impressive results, Piper Sandler downgraded Zscaler to ‘Neutral’ from ‘Overweight,’ setting a new price target of $260, up from $235, citing the stock’s 50% year-to-date rally as a factor limiting further upside potential. The firm acknowledged Zscaler’s outperformance in fiscal Q3 and noted that the billings ramp for the second half of the year appears “less daunting” due to the quarter’s strength, yet cautioned that the stock’s valuation may already reflect much of its near-term growth prospects. Zscaler’s results and the subsequent market reaction underscore the delicate balance between strong fundamentals and elevated investor expectations in a competitive cybersecurity market, where innovation and execution remain critical for sustained growth.

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