The Man Named in the Risk Factors

On August 1, 2025, Zscaler paid $675.0 million in cash, plus equity awards for the staff, to buy a private company called Red Canary, which sells managed detection and response - the service of watching a customer's alerts and chasing the ones that matter. Six months later that purchase was carrying an unusual share of the load.

In the quarter ended January 31, 2026, Zscaler reported annual recurring revenue up 25 percent, at $3.359 billion. Take Red Canary out and the growth rate was 21 percent. Take it out of net new ARR - the money actually added during the quarter, the number that separates what a security company won from what it bought - and growth fell from 25 percent to 7 percent.

Seven percent, at a company whose entire valuation rests on compounding.

The Number Behind The Number

Zscaler publishes that split itself, every quarter, in the same release. Second quarter of fiscal 2026: ARR of $3.359 billion, or $3.245 billion without the acquisition, which carried $114.0 million of ARR of its own. Net new ARR of $155.5 million for the quarter, growing 7 percent on an organic basis.

Three months later the line moved. In the third quarter, ended April 30, ARR reached $3.525 billion - still 25 percent, still 21 percent stripped of Red Canary - but organic net new ARR grew 14 percent, double the previous quarter's rate. Revenue was $850.5 million, up 25 percent. Non-GAAP operating margin reached 23 percent, the highest the company had recorded.

Jay Chaudhry, co-founder, chairman and chief executive of Zscaler, addressed none of the decomposition. He talked about architecture. Zscaler, he said, was "the cybersecurity platform for the AI era", and that "Our results demonstrate that our approach is resonating as we attract new customers and expand with our existing customers".

A year earlier the arithmetic had needed no footnote. In the third quarter of fiscal 2025, reported on May 29, 2025, two months before Red Canary closed, revenue was $678.0 million, up 23 percent, and all of it was Zscaler's own. Chaudhry's language then was what it had been for years: "We delivered outstanding Q3 results as an increasing number of customers adopt our expanding Zero Trust Exchange platform." No adjustment, no exclusion, no second figure in parentheses.

Named In The Risk Factors

Few founders remain this exposed to their own companies at this size. As of July 31, 2025, Chaudhry and his affiliates beneficially owned approximately 17 percent of Zscaler's common stock. Officers, directors and five percent holders together held roughly 41.4 percent.

The annual report goes further than ownership. Among the risk factors, under the heading of losing key personnel, Zscaler tells its shareholders in plain type: "we are highly dependent on the services of Jay Chaudhry, our Chief Executive Officer and chairman of our board of directors, who is critical to our future vision and strategic direction". Later in the same document, listing events that could move the share price, the company flags any major change in its management and names him specifically.

Most public companies bury the key-man problem. Zscaler prints it.

It Began As Safechannel

The company now booking $850 million a quarter did not start under its own name. "We were incorporated in the state of Delaware in September 2007 as SafeChannel, Inc., and in August 2008, we changed our name to Zscaler, Inc."

The proposition was that the internet would become the corporate network and the cloud would become the data center, and that security would therefore have to move off the customer's premises and into the path of the traffic. Chaudhry has held the chief executive's job and the chairman's seat since that September.

The bet took eighteen years to reach three billion dollars of recurring revenue. He marked the crossing on September 2, 2025, reporting the fourth quarter of fiscal 2025: "we achieved a new milestone of more than $3 billion of Annual Recurring Revenue" - and, in the same quarter, the highest operating margin the company had then posted.

The Gaap Line Stays Red

Under the accounting that counts the cost of paying people in stock, Zscaler still loses money.

Third quarter of fiscal 2026: a GAAP operating loss of $29.6 million on revenue of $850.5 million, and a GAAP net loss of $13.9 million, set against non-GAAP operating income of $195.8 million. The quarter before, the GAAP operating loss was $51.8 million, six percent of revenue. The gap between the two sets of books is the whole argument about what a software company is worth.

One cash line also moved backwards. Operating cash flow in the third quarter was $198.0 million, against $211.1 million a year earlier. Free cash flow rose over the same comparison, to $136.0 million from $119.5 million.

The balance sheet absorbed the deal without visible strain. Zscaler closed fiscal 2025 holding $3.572 billion in cash, equivalents and short-term investments, having issued $1.725 billion of convertible notes due 2028 in July of that year and repaid $1.15 billion of notes that came due.

What July 31 Will Show

Zscaler's fiscal 2026 closed on July 31. Those results have not been filed. When they are, they will settle the question the last two quarters raised and left open: whether organic net new ARR moving from 7 percent to 14 percent was a turn or a bounce, and how much of the growth Zscaler reports still arrives by purchase.

Chaudhry has already staked the next stretch on securing artificial intelligence rather than selling more of what he has. In February he told investors the company saw robust demand across what he called its three growth pillars, and that Zscaler was "just scratching the surface of this massive future growth opportunity."

He has been in the chair since SafeChannel. He owns roughly a sixth of what it became. The annual report says so, and says what happens if he leaves.