Red Canary Acquisition, AI Innovations Propel Zscaler's Growth Story: Analyst

Needham analyst Mike Cikos maintained a Buy rating on Zscaler ZS and raised the price forecast from $310 to $350.

On June 3, Cikos attended Zscaler’s annual Zenith event, the company’s flagship gathering for customers and partners. In an analyst note, he said that the company unveiled several new capabilities, primarily focused on AI and the expansion of its Zero Trust Everywhere initiative.

These enhancements aim to bolster data security and thwart cyberattacks, directly addressing critical challenges businesses face when adopting AI, such as protecting proprietary information and ensuring regulatory compliance.

Also Read: Zscaler Beats Q3 Earnings Estimates, Raises Guidance, Increases Investments In AI

Cikos stated that he sees Zenith as Zscaler’s initial presentation of management’s expansive vision for a reimagined Agentic SOC (Security Operations Center) powered by AI innovations supporting their Data Fabric for Security.

Concurrently, the acquisition of Red Canary is expected to accelerate this vision by adding domain experts capable of engaging with customer SOC teams, a slightly different client persona, the analyst noted.

Additionally, the analyst pointed out that Red Canary is anticipated to empower Zscaler’s partners to serve clients better while advancing the Threat Management vision by more effectively utilizing security signals for investigations.

The analyst believes that Zscaler is capable of maintaining its high level of execution as new sales hires increase their productivity and attrition rates decline.

Cikos mentioned that in the third quarter of FY25, Zero Trust Everywhere customers grew over 60% sequentially to more than 210, targeting over 390 by the end of FY26.

The company sees a 6x up/cross-sell opportunity in existing customers, and Cikos views newer products like Branch and AI Analytics as underappreciated.

Cikos foresees sustained ~20% growth, with operating margins eventually surpassing 30% in the long term.

Price Action: ZS shares are trading higher by 1.05% to $298.19 at last check Wednesday.

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