Zscaler, Inc. (ZS): AI-Driven Bullish Options Opportunity

Zscaler provides cloud-native security solutions, built on the 'Zscaler Zero Trust Exchange' platform, enabling secure digital transformation. Its core offerings include 'Zero Trust Everywhere', extending zero trust principles across locations; 'Data Security Everywhere', safeguarding sensitive information; 'Security for AI', securing public and private AI applications; and 'Agentic Operations', integrating AI to empower security and IT teams. The company targets large enterprises and government agencies across various industries, including financial services, healthcare, and technology. Zscaler differentiates itself by pioneering a cloud-native platform that implements zero trust principles, connecting users, devices, applications, and workloads without relying on traditional network architecture, ultimately reducing the attack surface and preventing lateral threat movement.

Zscaler's acquisition of SPLX is the primary driver of this short-term outlook. While the terms are undisclosed, suggesting the deal's size might not be materially significant, the acquisition itself signals Zscaler's continued strategic focus on expansion and technology enhancement. M&A activity typically introduces uncertainty in the short term, but generally viewed as positive for long-term growth. Given the lack of details on the acquisition's financials, the impact is likely to be moderately positive. The absence of macro news allows the company-specific event to take precedence. The market's reaction will depend on investor perception of the strategic fit and potential synergies between Zscaler and SPLX. A positive initial reaction could propel ZS higher, but profit-taking is also a possibility. Therefore, a slightly bullish sentiment is warranted, reflected in the score of 0.65. Further details on the acquisition, if released, could significantly alter this outlook.

ZS exhibits a moderately bullish outlook based on recent technical data. The stock has recovered strongly from a low of $267.51 on 2025-08-27 to close at $328.36 on 2025-11-04. The price is currently trading above its 21-day EMA of $315.10 and its 50-day SMA of $296.83, indicating a short-term and intermediate-term uptrend. The MACD is positive at 9.29, and the MACD histogram is also positive, suggesting increasing bullish momentum. The RSI of 68.83 indicates that the stock is approaching overbought conditions but still has room to run. The Stochastic Oscillator (STOCHk) is at 90.59, confirming overbought levels, which may lead to a short-term pullback. However, the ADX at 23.85 shows a strengthening trend. The recent ROC_20 of 10.17 further reinforces the bullish momentum. While the price is nearing its 52-week high of $336.99, the overall technical picture suggests continued upward movement in the coming 1-3 months, although a period of consolidation or a minor pullback is possible given the overbought readings on some indicators.

Zscaler's MD&A presents a cautiously optimistic view. Revenue increased by 23% to $678.0 million for the three months ended April 30, 2025, and 24% to $1,953.9 million for the nine months ended April 30, 2025. This growth was 'driven primarily by an increase in users and sales of additional subscriptions to existing customers'. However, gross margin decreased from 79% to 77% for the three-month period and from 78% to 77% for the nine-month period, 'primarily due to an increase in employee-related expenses' and data center operating costs. Net cash provided by operating activities increased to $721.8 million for the nine months ended April 30, 2025, compared to $576.3 million for the same period in 2024. The company notes that 'macroeconomic conditions may impact the future demand for subscriptions of our cloud platform' and that they continue to see 'customer scrutiny of and elongated approval processes for transactions, particularly larger deals'. Zscaler anticipates continued investment in sales, marketing, and R&D, expecting operating expenses to increase in absolute dollars. Overall, while revenue growth remains strong, margin compression and macroeconomic headwinds warrant a measured outlook.

Zscaler's Q4 earnings call paints a moderately bullish picture, driven by strong growth and platform innovation. CEO Jay Chaudhry highlighted an 'outstanding Q4' with revenue growth of 21% year-over-year and operating margin exceeding 22%, a 'quarterly record'. ARR increased approximately 22% year-over-year, surpassing $3 billion. The company is focusing on three key growth areas: AI security, Zero Trust Everywhere, and data security everywhere, which together surpassed $1 billion in ARR. Management anticipates high single-digit net new ARR growth in fiscal 2026 on an organic basis. CFO Kevin Rubin mentioned that they are 'shifting our focus from billings to full-year ARR as our primary growth metric.' While gross margin was slightly lower due to a one-time hardware deployment, it's expected to rebound. The company's Z Flex program is gaining traction, generating over $100 million in TCV bookings in Q4, representing over 50% sequential growth. The acquisition of Red Canary is expected to contribute $95 million to ARR in fiscal 2026. Overall, Zscaler's expanding platform and focus on key growth areas position it well for continued success, although the company is assuming the macro environment to be 'relatively unchanged' in fiscal 2026.

ZS exhibits a generally positive trajectory, although some caution is warranted. Revenue has grown steadily from $496.7M in Q1 2024 to $719.2M in Q4 2025, indicating strong top-line growth. The gross profit ratio, while fluctuating, remains relatively high, ranging from 0.77 to 0.78, suggesting good cost control relative to revenue. Operating cash flow is positive in the latest quarter at $254.9M, demonstrating the company's ability to generate cash from its operations; however, this metric has varied considerably across the quarters. Total debt has increased from $1,215.8M in Q1 2024 to $1,796.6M in Q4 2025, signaling increased leverage. While the company maintains a substantial cash and short-term investments balance of $3,572.4M, the rising debt should be monitored. Overall, ZS demonstrates solid revenue growth and positive operating cash flow, offset by an increasing debt load.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.