Zscaler posts wider quarterly loss on higher spending; shares down 9%

By Jaspreet Singh

Feb 26 (Reuters) – Zscaler on Thursday posted a wider net loss in the second quarter, citing higher spending on sales, marketing, and research and development in a competitive market, sending shares of the cloud security firm down roughly 9% in extended trading.

The results come when IT budgets remain tight and clients spend cautiously on large deals amid economic uncertainty, even though cybersecurity budgets face less pressure than general capital outlays.

Zscaler provides cloud-based zero trust security, which is designed to eliminate the need for legacy firewalls and virtual private networks (VPNs) by authenticating each connection rather than granting broader network access.

Shares of cybersecurity companies, including CrowdStrike and Zscaler, have fallen in recent days as investors assessed the potential impact of AI startup Anthropic’s Claude Code Security tool on the industry.

Zscaler, which competes with Palo Alto Networks and Cloudflare, reported a net loss of $34.3 million in the quarter ended January 31, widening sharply from a net loss of $7.7 million a year earlier.

Total operating expenses rose to $676.3 million in the second quarter, compared with $539.5 million in the year-ago period, driven by sales, marketing and research and development expenses.

“While CIOs (chief information officers) care about the budget, but they’re doing two things: they do want to embrace AI and they want to do it securely. So, AI is driving demand for security,” Zscaler CEO Jay Chaudhry said.

Businesses spend on tools offered by companies such as Zscaler amid a wave of high-profile cyberattacks that has hit companies, including F5.

Zscaler said its second-quarter revenue rose 26% to $815.8 million, beating analysts’ average estimate of $798.8 million, according to LSEG-compiled data. Its adjusted profit per share of $1.01 exceeded estimate of 90 cents.

The company forecast third-quarter adjusted earnings per share of $1.00 to $1.01, above analysts’ estimates of 95 cents, and revenue of $834 million to $836 million, topping expectations of $831.9 million.

(Reporting by Jaspreet Singh in Bengaluru; Editing by Tasim Zahid and Sherry Jacob-Phillips)