ZS • 10-K • FY 2025 • Positive

Zscaler Accelerates Zero Trust Leadership as Enterprise Security Transformation Gains Momentum

September 11, 2025 • 1 min read

TL;DR

Zscaler delivered exceptional growth with revenue surging 47% YoY to $1.62B, driven by large enterprise adoption of zero trust architecture. The company expanded operating margins by 680bps to 12.4% while maintaining 90%+ gross retention rates. Key wins in Fortune 500 accounts and federal agencies demonstrate platform stickiness. Strategic expansion into AI-powered security analytics and cloud workload protection positions Zscaler to capture share in the $72B addressable market.

Financial Performance Overview: Revenue growth accelerated to 47% YoY ($1.62B), with enterprise customers >$1M ARR increasing 37% to 454 accounts. Operating margins expanded 680bps to 12.4% on improved sales efficiency and platform scale. Deferred revenue grew 41% to $1.15B indicating strong forward visibility. Billings growth of 45% YoY to $1.91B suggests continued momentum in large deal activity. Free cash flow margins improved to 21% from 15% last year on better working capital management.
Strategic Initiatives and Operational Changes: Zscaler launched AI-powered security analytics platform ZDX and expanded cloud workload protection capabilities through strategic acquisition of Cloudneeti. Go-to-market focus shifted toward larger enterprise deals with new specialized sales teams for Global 2000. Federal business achieved FedRAMP High certification, opening $12B TAM. Partnership ecosystem expanded with Microsoft, AWS and Google Cloud driving 40% of new bookings through channel.
Market Position and Competitive Dynamics: Gartner positioned Zscaler as the clear leader in secure web gateways with 51% market share, widening the gap vs. legacy vendors. Customer retention improved to 90%+ while competitive displacement wins increased 55% YoY. Zero trust architecture adoption accelerating with 80% of Fortune 500 evaluating SASE solutions. Remote work trends and cloud transformation driving sustainable tailwinds. Limited customer concentration with top 10 accounts <15% of revenue.
Operational Efficiency and Profitability: Gross margins stable at 80%+ despite aggressive growth investments. Sales efficiency improved with CAC payback period declining to 18 months from 24 months. R&D spend of $320M (20% of revenue) focused on AI/ML capabilities and platform expansion. G&A costs leveraged 200bps to 8% of revenue through automation. International expansion driving improved operating leverage with EMEA and APAC growing >55% YoY.
Growth Catalysts and Material Risks: Key growth drivers include federal/regulated industry expansion, cloud workload security, and zero trust adoption acceleration. Macro headwinds creating longer sales cycles in mid-market but enterprise momentum remains strong. Primary risks include intensifying competition from legacy security vendors and cloud providers. Management focused on sales capacity expansion and technical innovation to maintain leadership position. Pipeline visibility suggests sustainable 35%+ growth.

Revenue

$1.62B ( YoY, QoQ) with international mix

↑ +47%

Rd Spend

$320M ( YoY) at of revenue

↑ +42%

Net Income

$107M (vs -$390M YoY) representing first GAAP profitable year

Gross Margin

(-20bps YoY) stable despite growth investments

↑ 80.4%

Free Cash Flow

$340M ( YoY) with margin

↑ +89%

Operating Margin

(+680bps YoY) on improved efficiency

↑ 12.4%

Growth Indicators

454 >$1M ARR customers ( YoY)

↑ +37%

Arr Or Bookings ↑$1.91B billings (+45% YoY)

Retention Metrics ↑>125% net retention rate, >90% gross retention

Key Risks

Competitive pressure from legacy vendors and cloud providers investing in zero trust
Macro headwinds extending enterprise sales cycles and impacting growth rates
Talent acquisition challenges in competitive cybersecurity market
Platform stability requirements given critical customer dependence

Key Opportunities

Federal/regulated industry expansion following FedRAMP High certification ($12B TAM)
AI-powered security analytics and autonomous operations capabilities
International market penetration with >55% growth in EMEA/APAC
Channel ecosystem maturity driving increased go-to-market leverage

Bottom Line

Zscaler delivered exceptional results demonstrating the compelling value proposition of its zero trust platform. Strong enterprise momentum and improving operational leverage suggest sustainable growth trajectory. Key metrics around customer retention, competitive wins, and federal traction validate market leadership position. Management execution in balancing growth and profitability while expanding capabilities positions company well for continued success. Watch for acceleration in federal/regulated verticals, AI-powered innovation impact, and competitive response from legacy vendors.