Zscaler, Inc. (ZS): Barclays expects Zscaler’s Investor Day to support higher long-term margins and its multi-product story, but faster growth is needed to change the competitive debate.

Overview

This event preview assesses what Zscaler may communicate at its October 6 Investor Day. Barclays expects confirmation of FY27 guidance, a higher long-term profitability framework and a fuller explanation of the company’s expanding product and pricing model, while arguing that these developments alone may not resolve concerns over competition and growth durability.

Core views

Barclays expects Zscaler to reiterate FY27 ARR guidance of $4,396–4,426 million at its October 6 Investor Day, despite the transition in the chief revenue officer role. Mike Rich is stepping down, while Ross Tackett, previously head of worldwide sales, becomes CRO effective October 1. Barclays believes Tackett’s involvement in shaping the guidance could support management’s confidence in reiterating it. The firm also expects more discussion of Zscaler’s $10 billion ARR aspiration, but views this as a 5+ year objective: FY27 ARR is expected at roughly $4.4–4.5 billion, making achievement likely after FY30 and difficult to underwrite at present. A central potential catalyst is a higher long-term EBIT-margin target. Zscaler has already exceeded its prior 20–22% operating-margin target, delivering 23% in FY26 and with 23.7% expected in FY27. Barclays believes a 25–30% medium-term EBIT-margin target would be reasonable, supported by natural operating leverage, favorable unit economics and increasing multi-product sales. It compares this potential range with CrowdStrike’s 28–32% operating-margin target and Palo Alto Networks’ low-to-mid-30% target, while noting differences among the businesses and end markets. Barclays also points to Zscaler’s historical customer-cohort contribution economics as support for its view that the company’s unit economics may remain similar or improve with retention, more products and higher pricing. Barclays expects management to explain how Zscaler is becoming less dependent on user-based ZIA and ZPA products. While those products remain the majority of the business, the firm highlights faster-growing non-user-based areas: Zero Trust Branch, Zero Trust Cloud, Data Security and Security for AI. A larger contribution from these offerings could diversify revenue and extend the growth curve. The product mix also changes pricing mechanics: Zero Trust Branch is device-based, Zero Trust Cloud is based on workloads or traffic, Data Security includes user- and volume-based modules, and Security for AI is token- or consumption-based. Barclays expects Investor Day discussion to clarify how these models evolve. The stock remains contested. Bears view Zscaler primarily as a ZIA/ZPA company facing intensifying zero-trust and SASE competition, including from Palo Alto Networks, Netskope and other private SASE vendors; they worry that this will pressure growth. Bulls see possible upside from growing agentic traffic and view valuation as more palatable than larger security peers. Barclays notes ZS was down 11% year-to-date, versus gains of 110% for PANW, 120% for CRWD, 48% for HACK and 12% for the S&P 500. The firm believes higher margin targets and a more credible “Acts 2/3” multi-product narrative could make the event modestly positive, but argues that materially faster growth is still required to alter investor views on competition. Barclays retains Overweight and raises its price target by 10% to $220 from $200. The revised target uses approximately 30x FY28E free cash flow of approximately $1.1 billion, versus the prior approximately 27x multiple on the same FY28E FCF estimate. Barclays believes that higher margin targets and more detail on products beyond ZIA/ZPA could improve sentiment and support the higher multiple. Its upside case is $240, assuming FY28 FCF about 5% above its estimate and a roughly 31x multiple; its downside case is $150, assuming FY28 FCF about 10% below estimate and a roughly 21x multiple.

Analysis framework

Barclays frames the Investor Day around four questions: confirmation of the FY27 ARR outlook, the appropriate long-term margin target, diversification beyond core user-based products and the factors behind the bull-versus-bear debate. It then supports its valuation with a multiple applied to its FY28 free-cash-flow forecast and tests that valuation through upside and downside FCF and multiple scenarios.

Methodology notes

• Valuation methods

  Free-cash-flow multiple valuation with upside and downside scenarios

  Barclays values Zscaler by applying an approximately 30x multiple to its FY28E free cash flow of approximately $1.1 billion, then varies both free cash flow and the valuation multiple in its upside and downside cases.

• Industry AnalysisSupply-demand framework

  Product-mix and competitive-growth analysis

  The report evaluates whether faster-growing non-user-based security products can diversify Zscaler’s revenue base and extend growth despite competition in the SASE market.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zscaler, Inc. (ZS)

  Primary covered company; Barclays expects higher margin targets and a broader platform narrative to support sentiment and valuation.

  Strengths

  Leadership in SASE, first-mover and scale advantages, growing platform opportunity as customers consolidate security tools, and potential margin expansion.

  Weaknesses

  Investors may still view the business as predominantly dependent on ZIA/ZPA, and the $10 billion ARR goal is a long-dated objective.

  Comparison

  Barclays compares potential 25–30% EBIT margins with CrowdStrike’s 28–32% target and Palo Alto Networks’ low-to-mid-30% target; ZS was down 11% YTD versus gains for PANW and CRWD.

  Risks

  Competition, a smaller salesforce than incumbents and premium valuation could limit opportunities or compress the multiple.

Key data

• FY27 ARR guidanceUSD 4,396–4,426 millionBarclays expects Zscaler to reiterate this guidance at Investor Day.
• Long-term EBIT margin target25–30%Barclays’ expected potential updated target; prior target was 20–22%.
• FY26 operating margin23%Exceeded the prior long-term target.
• FY27E operating margin23.7%Barclays estimate.
• FY28E free cash flowApproximately USD 1.1 billionBasis for the $220 price target.
• Price targetUSD 220.00Raised 10% from USD 200.00; based on approximately 30x FY28E FCF.
• Current priceUSD 193.05Closing price on 25-Sep-2026.
• Potential upside/downside+14.0%Relative to the stated current price and target price.
• Upside caseUSD 240Assumes FY28 FCF approximately 5% above estimate and an approximately 31x multiple.
• Downside caseUSD 150Assumes FY28 FCF approximately 10% below estimate and an approximately 21x multiple.

Impact & implications

Barclays believes a higher margin framework and clearer evidence of revenue diversification could improve sentiment and support a higher valuation multiple. However, it says the Investor Day is unlikely to fully shift the debate unless Zscaler can demonstrate a flatter growth deceleration trajectory amid intensifying SASE competition.

Risks

• Competition from vendors building SASE solutions could weigh on growth and the investment case.
• Zscaler’s salesforce is smaller than those of incumbent vendors, which have stronger channel relationships and marketplace visibility.
• Its premium valuation could compress if competitive or execution risks materialize.

What to watch

• Whether management reiterates FY27 ARR guidance of $4,396–4,426 million following the CRO transition.
• Any updated long-term EBIT-margin target, particularly whether it falls in the 25–30% range.
• Management’s explanation of the path to $10 billion ARR and the expected timing beyond FY30.
• Evidence that Zero Trust Branch, Zero Trust Cloud, Data Security and Security for AI are diversifying the business and supporting growth.
• Changes in pricing models as revenue shifts from user-based products toward device-, workload-, traffic-, volume- and consumption-based offerings.