To The Moon

Accelerating billings, AI expansion, and a fortress-like Zero Trust model—can Zscaler sustain its lofty valuation in a jittery macro climate?

There’s an old saying in cybersecurity: no one ever got fired for being too secure. $Zscaler Inc.(ZS)$ has taken that maxim and built a $48 billion business around it, redefining how enterprises connect and protect in a cloud-first world. Yet with a forward P/E of 84 and a price-to-sales ratio pushing 18, investors have to ask: does its architecture and growth momentum truly justify such a premium?

The unseen fortress guarding the world’s digital arteries

Billings point to forward acceleration

Zscaler’s latest results didn’t just impress—they accelerated. Calculated billings rose 32 per cent year-on-year, while deferred revenue climbed 30 per cent, both outpacing 21 per cent top-line growth. Those figures are a forward-looking indicator of strength in fiscal 2026, reflecting robust demand for multi-year security commitments.

In an environment where IT budgets are under scrutiny, that’s no small feat. Enterprises continue to prioritise secure cloud adoption, and Zscaler has positioned itself as the gatekeeper. Customers aren’t merely buying licences—they’re buying peace of mind that their hybrid networks won’t become tomorrow’s breach headlines.

Billings up, bears down — momentum has chosen a side

Why Zscaler’s rivals can’t catch up

At the heart of Zscaler’s lead is its architecture. Its cloud-native, proxy-based Zero Trust Exchange replaces the traditional perimeter defence model entirely. Every user request and workload connection passes through its distributed network, where identity and intent are verified before access is granted. This design prevents lateral threat movement—one compromised device can’t freely traverse the network.

Legacy competitors like $Cisco(CSCO)$, $Fortinet(FTNT)$, and $Palo Alto Networks(PANW)$ are constrained by their firewall-based heritage. Retrofitting decades of perimeter logic into a cloud-native model isn’t simply an engineering challenge—it’s a philosophical one. Zscaler, built from scratch for a perimeterless world, runs circles around them.

Its advantage compounds through scale. Processing more than 200 billion transactions a day, Zscaler gathers telemetry few can rival. That dataset continuously trains its AI-driven threat detection, turning network traffic into an evolving security intelligence engine. It’s both a competitive moat and a source of operating leverage: every new customer strengthens the defences for all.

The next frontier: AI security and data protection

If Zscaler’s billings prove its present, its expansion into AI security and advanced data protection defines its future. The company has embedded machine learning models to spot anomalous user behaviour and integrated data-loss prevention directly into its Zero Trust fabric.

Zscaler estimates these initiatives have expanded its total addressable market from around $70 billion to more than $125 billion, positioning it alongside the largest enterprise SaaS players. This isn’t mere diversification—it’s a natural evolution of its platform from gateway security to full data governance.

As generative AI reshapes workflows, safeguarding the movement of sensitive data and model access is becoming mission-critical. Zscaler’s ability to inspect and control that traffic places it ahead of the curve, particularly as regulators tighten cross-border data rules. The company isn’t just protecting users—it’s securing the AI economy itself.

Financials: premium valuation, solid foundation

At face value, Zscaler’s valuation looks intimidating. But the fundamentals beneath it aren’t hollow. Revenue has reached $2.67 billion, growing 21 per cent year-on-year, with gross margins of 77 per cent—excellent by SaaS standards. Free cash flow of $751 million shows that profitability isn’t a distant aspiration but an intentional trade-off for reinvestment in growth.

The premium is undeniable—but it’s underpinned by exceptional metrics. A 32 per cent surge in billings, 30 per cent deferred revenue growth, and consistently strong net retention above 120 per cent signal durable demand. Investors are paying up because Zscaler is delivering growth most of its peers can’t match.

Sceptics might argue that an EV/revenue multiple above 17 and a PEG ratio north of four imply excessive optimism. Yet Zscaler’s track record of turning high-margin growth into cash flow gives credibility to that optimism. In cybersecurity, credibility is currency—and few firms have more of it.

Priced for paranoia: Zscaler’s premium sits where growth earns it

Macro jitters, manageable risk

Yes, the global economy looks uncertain. CIOs are scrutinising budgets, and the cost of capital remains elevated. But cybersecurity is one of the few spending areas that consistently resists cuts. Zscaler’s recurring revenue model, rising deferred billings, and long-term enterprise contracts cushion it from cyclical slowdown.

If macro pressure slows deal cycles, it merely delays—not derails—the demand for security modernisation. As every new breach headline reminds investors, deferring security spending rarely ends well.

Verdict: paranoia pays

Would I pay up? Cautiously, yes. $Zscaler Inc.(ZS)$ isn’t cheap, but it’s building the operating system for secure cloud connectivity—something enterprises can’t function without. Its accelerating billings, unmatched Zero Trust architecture, and expansion into AI-driven data protection justify much of the market’s faith.

If fiscal 2026 unfolds as the numbers suggest, today’s valuation could look prescient rather than exuberant. In cybersecurity, paranoia pays—and Zscaler remains the most paranoid company I know.

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