Zscaler shares down 21% after cash flow cut and outlook

Shares of Zscaler Inc. plummeted more than 21% in premarket trading on Wednesday, extending a sharp decline from after-hours trading the previous day, after the cloud security company issued a reduced free cash flow forecast and a preliminary growth outlook for fiscal 2027 that disappointed investors.

The selloff came despite the company reporting strong financial results for its fiscal third quarter, which ended April 30. Revenue reached $850.5 million, a 25% increase from the same period a year earlier and exceeding internal projections. Adjusted earnings per share were $1.08, surpassing the analyst consensus estimate of $1.01. Annual recurring revenue also grew 25% to $3.525 billion.

The market’s negative reaction centered on the company’s forward-looking guidance. Management significantly lowered its full-year free cash flow margin projection to a range of 22.8% to 23.3%, down from a prior outlook of 26.5% to 27%. The company attributed this revision to elevated capital expenditures, citing a strategic move to lock in favorable pricing for memory, storage, and processors ahead of anticipated cost inflation.

Investor concerns were further amplified by a preliminary outlook for...