Zscaler (ZS) Q3 2025: ZFlex Drives $65M in Bookings, Unlocking Platform Expansion
Zscaler’s Q3 marked a pivotal shift as the ZFlex purchasing model contributed $65 million in bookings, accelerating broader platform adoption and deepening customer relationships. The company’s ability to pair platform innovation with cost takeout programs is driving outsized wins in a cautious IT spending environment. With emerging categories rapidly scaling and a major Red Canary acquisition pending, Zscaler is signaling a move toward platform leadership in both Zero Trust and AI-powered security.
Summary
- ZFlex Adoption Accelerates: Flexible purchasing drove large multi-year commitments, catalyzing deeper platform uptake.
- Emerging Categories Outpace Core: Zero Trust Everywhere, Data Security, and Agentic Operations are growing faster than legacy products.
- Platform Strategy Gains Leverage: Integration of AI and security operations positions Zscaler for future expansion and higher-value deals.
Performance Analysis
Zscaler delivered robust Q3 results, with revenue, billings, and annual recurring revenue (ARR) all growing at double-digit rates, reflecting strong demand for the company’s Zero Trust Exchange platform. The Americas accounted for 54% of revenue, with EMEA and APJ contributing 30% and 16%, respectively, highlighting a diversified global footprint. Notably, remaining performance obligations (RPO) approached $5 billion, underscoring strong forward visibility and multi-year customer commitments.
Large customer momentum remains a structural strength, as Zscaler exited the quarter with 642 customers over $1 million in ARR and 3,363 over $100,000, both growing steadily. The company’s 12-month trailing dollar-based net retention rate (NRR) of 114% remains healthy, though management flagged that larger initial bundles and faster upsells could introduce variability in this metric going forward. Gross margin held above 80%, but management cautioned that new product launches prioritized rapid market adoption over immediate margin optimization.
- Unscheduled Billings Surge: High-20% YoY growth in unscheduled billings signals strong demand for incremental and upsell deals.
- Platform Penetration Deepens: Over 50 million users now secured on the platform, driving network effects and data scale for AI.
- Free Cash Flow Margin Strong: 18% FCF margin with significant data center CapEx, supporting ongoing innovation and expansion.
Overall, Zscaler’s performance signals a successful pivot toward larger, multi-product deals and platform-centric customer relationships, even as macro IT budgets remain tight and competitive intensity in security remains high.
Executive Commentary
"Driven by the strong demand, we achieved two significant milestones. First, we achieved our best Q3 with TCV bookings of over $1 billion. And second, our remaining performance obligations, or RPO, are now nearly $5 billion... Our annual recurring revenue, or ARR, was approximately $2.9 billion, representing the third straight quarter of 23% year-over-year growth."
Jay Chowdhury, Chairman and Chief Executive Officer
"Our Q3 results exceeded our guidance on growth and profitability, even with ongoing customer scrutiny of large deals... Our unscheduled billings comprised of new, upsell, and renewal billings grew in the high 20% year over year, driven by increasing customer demand for our platform."
Remo Kanissa, Chief Financial Officer
Strategic Positioning
1. ZFlex: Flexible Platform Adoption Model
ZFlex, Zscaler’s new purchasing program, enables customers to flexibly scale platform adoption and swap modules with pre-agreed pricing, simplifying procurement and accelerating multi-product uptake. In its first quarter, ZFlex contributed over $65 million in TCV bookings, with management expecting meaningful growth in fiscal 2026. Early adoption is focused on larger enterprises, with plans to broaden access as operational learnings accumulate.
2. Expansion in Emerging Growth Categories
Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations are now growing significantly faster than the company’s overall ARR, with their combined ARR approaching $1 billion. Zero Trust Everywhere, which extends protection to users, branches, and cloud workloads, saw customer count rise over 60% quarter-on-quarter. Data security is broadening beyond regulated industries as GenAI and SaaS adoption drive new risks, and agentic operations are enabling rapid incident response and IT automation through AI-driven solutions.
3. AI and Security Operations Integration
Zscaler’s platform is increasingly leveraging high-fidelity data for AI-powered security operations, including exposure management, threat management, and co-pilot solutions for IT and SecOps. The pending Red Canary acquisition will bring advanced managed detection and response (MDR) and agentic AI technologies, accelerating Zscaler’s expansion into security operations and reinforcing its platform leadership in the age of AI-driven threats.
4. Cost Takeout and Customer ROI
Cost Taker, Zscaler’s program to eliminate legacy security and networking products, is resonating with customers seeking to rationalize spend and reduce complexity. The company’s ability to deliver measurable cost savings, not just security improvements, is a differentiator as IT budgets remain under pressure. Zscaler is positioning itself as a partner for digital transformation, not just a point solution vendor.
5. Sales Productivity and Go-to-Market Execution
Sales productivity continues to improve, with specialist “takeoff teams” for new product areas and a broadened go-to-market engine. The company is emulating a ServiceNow-style model, focusing on deeper, more strategic account penetration and leveraging expert teams for emerging categories. This dual approach is enabling both breadth and depth in platform adoption.
Key Considerations
This quarter underscores Zscaler’s evolution from a single-product security vendor to a diversified platform provider, with flexible consumption models, AI-powered innovation, and a focus on customer ROI driving adoption.
Key Considerations:
- ZFlex Model Drives Stickiness: Pre-negotiated pricing and flexible module swaps reduce procurement friction and encourage platform-wide adoption.
- Emerging Categories Fuel Growth: Zero Trust, Data Security, and Agentic Operations are outpacing legacy offerings and creating new upsell vectors.
- AI Integration Is Strategic: High-fidelity, platform-scale data enables differentiated AI and security operations capabilities, a key advantage as threats evolve.
- Cost Takeout Resonates: Ability to replace legacy security and networking infrastructure strengthens Zscaler’s value proposition in a tight IT spending climate.
- Execution Discipline: Specialist sales teams and a measured rollout of new programs ensure scalable growth and operational focus.
Risks
Zscaler faces risks from macro IT budget constraints, intensifying competition in Secure Access Service Edge (SASE) and Zero Trust, and potential margin pressure as new products prioritize growth over profitability. The transition to ARR as the primary metric in fiscal 2026 may introduce short-term investor uncertainty, and the integration of Red Canary will require careful execution to realize strategic and financial synergies.
Forward Outlook
For Q4, Zscaler guided to:
- Revenue of $705 million to $707 million, reflecting 19% YoY growth
- Gross margin of approximately 80%
- Operating profit of $152 million to $154 million
- EPS of $0.79 to $0.80
For full-year 2025, management raised guidance:
- Billings of $3.184 billion to $3.189 billion (21-22% YoY growth)
- Revenue of $2.659 billion to $2.661 billion (23% YoY growth)
- Operating profit of $573 million to $575 million
- Free cash flow margin of 25.5% to 26%
Management highlighted continued investment in platform innovation, rapid scaling of new purchasing models, and a focus on long-term growth and profitability.
- Platform expansion into AI and security operations is a priority
- Margin optimization for new products will be phased in as they scale
Takeaways
Zscaler’s Q3 validates its platform strategy and ability to drive both growth and profitability at scale.
- Flexible Consumption Is a Differentiator: ZFlex is enabling larger, longer-term deals and deepening customer engagement across the platform.
- Emerging Solutions Gain Traction: High growth in Zero Trust, Data Security, and AI-driven SecOps signals successful innovation and future ARR leverage.
- Execution and Integration: Watch for Red Canary integration, margin trends on new products, and continued expansion of the ZFlex model to broader customer segments.
Conclusion
Zscaler’s Q3 showcased a successful pivot to platform-centric growth, with flexible purchasing, emerging solutions, and AI integration driving momentum. The company’s ability to deliver cost savings and innovation positions it well for continued expansion, though execution on new product scaling and M&A integration will be critical in the coming quarters.
Industry Read-Through
Zscaler’s results reinforce the secular shift toward integrated cloud security platforms, with flexible purchasing and AI-powered analytics increasingly table stakes for enterprise buyers. The strong adoption of Zero Trust and data security modules signals rising customer willingness to consolidate vendors and invest in comprehensive solutions that deliver both security and measurable ROI. Competitors in SASE, MDR, and cloud security will face mounting pressure to match Zscaler’s pace of innovation, data leverage, and customer-centric go-to-market models. The market is rewarding vendors who can pair cost takeout with tangible outcomes and platform extensibility, a trend likely to accelerate as AI-driven threats proliferate.