Zscaler's Rule of 40 Hits 50 as Stock Trades at 5x Revenue

Zscaler guided for $3.3 billion in revenue for FY26, up 25% from a year earlier. EBITDA margin is set to reach 26.8%, a jump from 2.3% in FY25. The Rule of 40 score – revenue growth plus EBITDA margin – sits near 50, comfortably above the 40 threshold. The stock has lost more than half its value over the past year.

Zscaler trades at 4.9 times forward enterprise value to revenue and 20 times forward enterprise value to free cash flow, according to Bloomberg consensus estimates. Both multiples are the lowest since the company went public in 2018.

Founder and CEO Jay Chaudhry, speaking at Zenith Live '26 in Vienna, pushed back against the idea that the selloff reflects a business problem. "Zscaler was made for this moment," he said in his conference keynote, pointing to the rise of agentic AI and the growing number of software vulnerabilities.

Zscaler operates on a zero-trust model: treat every user and application as a potential threat until verified. Chaudhry founded the company in 2007 on the insight that the old firewall-based approach breaks down when users access applications from anywhere on any device. The zero-trust architecture isolates the user from the network. Even if a device is hijacked, the attacker cannot see or infect the rest of the company.

The rise of agentic AI makes zero trust more critical, Chaudhry said. Autonomous software agents will soon outnumber human employees in many enterprises. "Yesterday, users were the weakest link. Today agents are the weakest link when it comes to security," he said. Zscaler has been working with Anthropic's Glasswing project to find and fix vulnerabilities in its own infrastructure.

On the broader SaaS downturn, Chaudhry argued that differentiation matters. He contrasted Zscaler's moat with simpler SaaS products: a piece of Claude code cannot replace what SAP has built for ERP systems. Complex systems require deep technical expertise and process. Zscaler's global infrastructure, about 160 locations with seamless network connectivity, creates a moat, he said.

Transaction volume supports the growth story. At the time of its IPO, Zscaler processed 30 billion transactions a day. Today that number exceeds 750 billion, a 25-fold increase implying a 47% compound annual growth rate. Revenue has grown at a similar 43% CAGR. Chaudhry expects transaction growth to remain strong with agentic AI usage expanding.

At roughly 35% ownership, Chaudhry holds a rare level of control for a US tech founder after multiple funding rounds. Zscaler was largely bootstrapped, giving him the freedom to act on conviction rather than quarterly pressure.

In India, Zscaler's fifth-largest market, Chaudhry said some private Indian banks are more sophisticated about cyber threats than some Western banks. Smaller businesses lag. Every organisation needs to prepare for the AI-driven threat environment, he said.

The company expects to close FY26 in July with $3.3 billion in revenue.