$2.50
$23.70
bear $2.50
base $13.80
bull $23.70
margin of safety $7.60
market price* $207.38
Zscaler sells a cloud-based cybersecurity platform on subscription contracts to enterprises and government agencies. At July 31, 2026 it had about 11,000 customers (9,400 a year earlier and 8,650 the year before), including over 40% of the Forbes Global 2000. Revenue was $3,352.5 million in fiscal 2026, up 25.4% from $2,673.1 million. About 53% comes from the United States, 28% from Europe, the Middle East and Africa, 15% from Asia Pacific and 4% from other regions. How we measure earnings. Zscaler reports an accounting loss ($63.2 million in fiscal 2026) but generates large operating cash flow ($1,129.7 million). Much of that gap is stock-based pay, $821.9 million or 24.5% of revenue, which is paid in shares instead of cash. We treat that pay as a real cost and deduct it in full. We also remove the year-to-year swing from billing timing (customers pay for subscriptions in advance, and sales commissions are paid up front and then spread over several years); in fiscal 2026 that swing was a net cash drain of $97.6 million. From spending on equipment and capitalized software ($350.5 million in fiscal 2026) we deduct only the part needed to keep the business running, treating the part tied to revenue growth (about 9.4% of each additional dollar of revenue, the eight-year average) as growth spending. On that basis, earnings per share to owners were negative through fiscal 2023 and have turned positive since: $0.29 in fiscal 2024, $0.56 in fiscal 2025 and $0.74 in fiscal 2026 (about $118.5 million in total on 160.2 million diluted shares). As a cross-check, net loss plus depreciation, amortization and other non-cash charges equals operating cash flow before the billing-timing swing, with no unexplained gap. The starting level. Owner earnings only turned positive in fiscal 2024, as stock-based pay fell from 37.5% of revenue in fiscal 2022 to about 24% to 25% in each of fiscal 2024, 2025 and 2026. We therefore measure the business only from fiscal 2024. The median of those three years is $0.56 per share, and that is the starting point for the base case. We did not use the latest $0.74, because one year of improvement is not yet a pattern. Base case: about $13.8 per share. Owner earnings per share grew 33% in fiscal 2026 (from $0.56 to $0.74). We assume less, 15% in the first year, fading by one point each year to 6% in year 10. Growth in the year ahead is supported by contracts already signed: remaining contracted subscription revenue was $7,365.4 million at July 31, 2026, up from $5,780.1 million a year earlier, and most contracts cannot be cancelled during their term. As a check on the record, a year earlier the portion of the contracted backlog due within 12 months was about $2.66 billion (46% of $5,780.1 million), while actual fiscal 2026 revenue was $3.35 billion, so new sales and renewals added to what was already booked. We credit the steady flow of new customers and expansion sales that has lifted revenue in each year from fiscal 2019 to fiscal 2026, but only at rates well below what the company has delivered. We give no credit for higher profit margins, for new products, or for market share gains. After year 10 we assume owner earnings hold flat for ten more years, reflecting subscriptions that renew, and then stop, because we cannot name anything that supports earnings beyond that. Bear case: about $2.5 per share. The business is thinly profitable after stock-based pay (owner earnings were about 3.2% of revenue in fiscal 2025), so a modest change in costs matters a great deal. The bear case returns owner earnings to the fiscal 2024 level of $0.29 per share, grows them 5%, 5%, 4%, 4% and 3% over five years, holds them flat for five more, and then ends. Named pressures behind it: stock-based pay is still nearly a quarter of revenue; the increase in customer prepayments fell from $573.1 million in fiscal 2025 to $379.9 million in fiscal 2026; and the company spent $918.1 million on acquisitions in fiscal 2026 (including Red Canary, a managed detection and response company bought on August 1, 2025 for $651.4 million) after $374.7 million in fiscal 2024, so purchases that fail to pay back are a recurring risk. The company also owes $1,725 million of zero-coupon convertible notes due July 15, 2028; because they pay no interest and owner earnings are already measured after interest, we do not deduct them separately. Bull case: about $23.7 per share. Here the company delivers on the strengths it has already shown. Owner earnings start at the fiscal 2026 level of $0.74 per share and grow 20%, 18%, 16%, 14%, 12%, 10%, 9%, 8%, 7% and 6% over ten years, still below the 25% revenue growth of fiscal 2026 and with no margin gain assumed, then hold flat for fifteen years as customers keep renewing. What could make this wrong. Owner earnings here are a small residue after very large stock-based pay, so small shifts in that pay or in revenue growth change the answer a lot, which is why the range from $2.5 to $23.7 is wide. If the company keeps holding stock-based pay near 24% of revenue while growing revenue at 20% or more, results will land nearer the bull case; if growth slows toward the contracted backlog alone, nearer the bear case. Four companies were acquired during fiscal 2026 and have a short record inside Zscaler, and the purchase accounting for at least one of them is still preliminary. The margin-of-safety price is $7.6 per share, roughly 45% below the base case and about three times the bear case, reflecting how much of the value depends on a thin profit margin holding.