0001713683-25-000158
SEC filingRevenue grew 23% YoY to $2.67B, while non-GAAP operating margin expanded 200 bps to 22%, driven by scaling subscription revenue.
Zscaler enables customers to succeed in a digital world by providing a cloud-native, multitenant Zero Trust Exchange platform that securely connects users, devices, applications, and workloads. The company was founded in 2007 based on the vision that the internet would become the new corporate network. Its platform is distributed across more than 160 public exchanges and thousands of private exchanges at the edge, processing over 500 billion transactions daily. Zscaler blocks over 225 million threats per day and performs over 250,000 unique security updates.
Zscaler's core platform is the Zscaler Zero Trust Exchange, which implements Zero Trust principles. The platform is organized around four solution areas: Zero Trust Everywhere, Data Security Everywhere, Security for AI, and Agentic Operations. Key products include Zscaler Internet Access (ZIA) for secure access to external applications, Zscaler Private Access (ZPA) for Zero Trust Network Access to internal applications, and Zscaler Digital Experience (ZDX) for monitoring user experience. Additional products include Zero Trust SD-WAN, Zero Trust Device Segmentation, AI-SPM, AI Guard, and Red Canary Managed Detection and Response. The company also offers exposure management, deception technology, and a Data Fabric for Security.
Zscaler employs a channel sales model with a joint sales approach, working directly with customers alongside channel partners such as global telecommunications service providers, system integrators, value-added resellers, and public cloud marketplaces. Marketing focuses on platform and brand awareness through account-based strategies. As of July 31, 2025, Zscaler had over 9,400 customers, including approximately 40% of the Forbes Global 2000 and over 45% of Fortune 500 companies. No single end customer contributed more than 10% of revenue in the past three fiscal years. Approximately 49% of revenue comes from outside the United States, with customers in over 185 countries.
Zscaler faces competition from legacy on-premises appliance vendors, large networking vendors, point solution providers (e.g., proxy, firewall, CASB, sandboxing), and other cloud security services. Key competitive factors include delivering security from the cloud regardless of user location, platform features, reliability, scalability, rapid innovation, integration with the security ecosystem, price, total cost of ownership, brand trust, and customer support. Zscaler believes its integrated cloud platform differentiates it from point products, but competitors may have greater financial resources, brand recognition, or distribution networks.
Zscaler's growth strategy consists of five pillars: (1) winning new customers, (2) expanding within existing customers through a land-and-expand approach, selling additional users, solutions, and premium bundles, (3) leveraging channel partners to participate in cloud transformation initiatives, (4) expanding and innovating services through R&D and acquisitions, and (5) expanding into additional market segments, including new geographies in Asia Pacific, Latin America, and the Middle East. The company also focuses on integrating AI capabilities into its platform to address emerging security challenges.
As of July 31, 2025, Zscaler had 7,923 employees worldwide. The company prioritizes attracting, developing, and retaining skilled employees, especially in product development, engineering, sales, and customer success. It offers competitive compensation, including base pay, performance-based bonuses, equity incentives, and an employee stock purchase plan, along with comprehensive benefits and wellness programs. Zscaler invests in employee development through training, tuition reimbursement, and leadership programs. The company's culture is built on values of teamwork, ownership, passion, innovation, and customer obsession.
In FY2025, Zscaler's revenue increased 23% YoY to $2,673.1 million, fueled by a 9% expansion in its customer base (to over 9,400 customers) and an increase in users and additional subscriptions sold to existing customers, which contributed $434.0 million of the revenue growth. Gross margin slipped 100 bps to 77%, primarily due to higher data center operating costs from expanded capacity and a one-time $7.0 million large private cloud deployment, along with increased employee-related expenses including stock-based compensation. Net loss improved to $41.5 million from $57.7 million in the prior year, aided by lower interest expense and a reduced provision for income taxes.
On a non-GAAP basis, gross margin was 80% (down from 81%), while non-GAAP operating margin expanded 200 bps to 22%, reflecting continued operating leverage as sales and marketing expenses declined as a percentage of revenue. Free cash flow grew to $726.7 million, or 27% of revenue, consistent with the prior year.
Zscaler operates as a single reportable segment. Subscription and support services represented the vast majority of revenue—98% in FY2025, up from 97% in FY2024. Professional and other services remained immaterial. Growth was driven by both new customer additions and expansion within the existing customer base, as evidenced by a dollar-based net retention rate of 114%. The company noted that it typically expands relationships through its land-and-expand model by increasing user deployments, upselling advanced capabilities, or selling additional solutions such as ZPA to ZIA customers.
Management expects to continue investing in sales and marketing, research and development, and general and administrative functions, which will keep operating expenses rising in absolute dollars. However, the company anticipates that these expenses will decrease as a percentage of revenue over the long term. A notable shift in reporting is the discontinuation of calculated billings as a key metric starting Q1 FY2026, with ARR becoming the primary growth indicator. Macroeconomic uncertainty is expected to continue elongating sales cycles and delaying large deals. No specific quantitative guidance for FY2026 was provided.
As of July 31, 2025, Zscaler held $2,389.0M in cash and cash equivalents and $1,183.4M in short-term investments, for a total liquidity position of $3,572.4M. The company’s financial position remains strong, with total assets of $6,419.9M and stockholders' equity of $1,799.3M. Deferred revenue, a key measure of future revenue, grew to $2,468.0M (current: $2,054.4M, noncurrent: $413.6M), up from $1,895.0M at July 31, 2024.
Zscaler reported $607.9M in non-cancelable purchase obligations as of July 31, 2025. These commitments primarily relate to cloud infrastructure capacity, subscription-based cloud service arrangements, technology equipment, and consulting services. The timing of these obligations is $129.3M within one year, $168.0M in year two, $150.6M in year three, and $159.5M thereafter. Operating lease liabilities total $95.8M, covering real estate and co-location arrangements. Additionally, the company has entered into a lease for a new headquarters in Santa Clara, California, with undiscounted future minimum payments of $69.5M, expected to commence in fiscal 2026.
Zscaler did not announce any share buyback programs or dividends in the latest period. Capital expenditures, including capitalized internal-use software, totaled $245.8M in fiscal 2025, representing 9.2% of revenue. In July 2025, the company issued $1,725.0M of 0.0% convertible senior notes due 2028 (the “2028 Notes”), using net proceeds to repay the $1,150.0M 2025 Notes and purchase $196.8M in capped call options to reduce potential dilution. The company also completed a $675.0M cash acquisition of Red Canary, Inc. subsequent to year-end, financed from existing cash.
Zscaler operates as a single reportable segment. Revenue by geography shows the United States contributed 51% ($1,359.3M), Europe, Middle East, and Africa 30% ($792.8M), Asia Pacific 16% ($423.8M), and other regions 3% ($97.2M). The company also breaks out revenue by customer type: 88% from channel partners and 12% from direct customers.
Zscaler continues to report annual net losses, with an accumulated deficit of $1.19 billion as of July 31, 2025. The company's rapid revenue growth may not be sustainable, and operating results are subject to significant quarterly fluctuations due to factors like seasonality, sales cycle length, and macroeconomic conditions. The company's subscription model means that downturns in new business may not be immediately reflected in revenue, complicating financial forecasting.
The cloud security market is intensely competitive, with Zscaler facing pressure from established vendors (e.g., Cisco, Palo Alto Networks) and emerging startups. The company's reliance on channel partners (top five partners generated 28% of fiscal 2025 revenue) introduces execution risk, as these partners are non-exclusive and may prioritize competing products. Failure to innovate or keep pace with technological changes (e.g., AI/ML) could erode market share.
As a security provider, any actual or perceived breach of Zscaler's platform or internal systems could be especially damaging, leading to customer loss, litigation, and reputational harm. The company acknowledges that its insurance may be insufficient to cover all liabilities. Service interruptions, whether from infrastructure failures, cyberattacks, or geopolitical events (e.g., conflicts in Ukraine and the Middle East), could trigger service level credit obligations and harm customer relationships.
Zscaler's international operations (49% of revenue from outside the U.S., 63% of employees abroad) expose it to currency fluctuations, trade regulations (including tariffs), and evolving data privacy laws (e.g., GDPR, EU Data Act). The company also faces risks from AI/ML regulation, export controls, and potential tax challenges related to its global corporate structure. The concentration of operations in India (37% of workforce) adds specific risks related to wage inflation, political instability, and natural disasters.
The issuance of $1.725 billion in 0.0% Convertible Senior Notes due 2028 introduces significant debt service obligations. Conversion or repurchase of these notes could require substantial cash payments, potentially limiting funds for working capital and growth investments. The associated capped call transactions introduce counterparty risk and could affect the company's stock price.
Zscaler's fiscal 2025 cash flow statement reveals strong cash generation with operating cash flow of $1.1 billion, significantly exceeding net income. This indicates high-quality earnings backed by cash collections. Capital expenditures were modest at $49.9 million, resulting in a low capex intensity of approximately 4.5% of operating cash flow. Free cash flow (implicitly $1.05B) comfortably covers any capital needs, though the company did not return capital to shareholders via buybacks or dividends. The investing cash flow line shows only capex, with no acquisitions or divestitures. Financing cash flow was zero, indicating no debt or equity activity. Key drivers of the strong CFO likely include deferred revenue growth and working capital efficiency, though specific breakdowns (e.g., stock-based compensation, changes in deferred revenue) are not detailed in the excerpt. Overall, the cash flow profile is robust and supports the company's growth investments without reliance on external financing.