Zscaler Is Down 50% While Its Non-Seat Revenue Keeps Growing. Here’s Where the Stock Could Go

Key Stats for Zscaler Stock

• Current Price: $168.68
• Target Price (Mid): ~$299
• Street Target: ~$193
• Potential Total Return: ~77%
• Annualized IRR: ~15% / year

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What Happened?

Zscaler (ZS) trades at about 25 times forward EBITDA, right at the average multiple of its software peer group, even though its recurring revenue is still growing 25% and its forward growth is only now easing toward the high teens. That gap is the whole debate. The fear behind the discount is specific: Zscaler charges per user, and in an AI era where agents replace headcount, per-user pricing looks like a melting ice cube. Shares sit near $168.68, roughly half the 52-week high of $336.99, largely because the market believes that story.

The trouble with the story is that Zscaler is already rewriting the pricing model it depends on. The question for anyone looking at the stock here is whether the market has confused a business model transition with a business in decline.

The Fear Is Aimed at a Model That’s Already Changing

The bear case is clean. If AI agents replace human workers and Zscaler bills per seat, the customer base shrinks as AI scales. That logic compressed the multiple.

Zscaler has spent over a year dismantling it. At the company’s Zenith Live conference in June, founder and CEO Jay Chaudhry said new business from non-seat pricing had climbed from about 25% of new annual contract value a quarter earlier to 30% in the most recent quarter, spanning branch security priced on devices and traffic, cloud workloads priced on volume, and data security priced on how much data gets scanned. “We don’t think we have any meaningful exposure based on seats because our model is expanding,” Chaudhry told the audience.

The sharpest expression of the pivot is the Agentic Exchange, Zscaler’s product for brokering and policing AI-agent traffic. Chaudhry framed it as a consumption business, priced “based on traffic or call it the number of requests, which translates into tokens.” He argued the volume could be enormous, noting Zscaler already handles about 750 billion transactions a day and that the agent world could “add a couple of zeros” to that. That is the mechanism that flips AI adoption from a threat into a meter running in Zscaler’s favor. It is also early: Chaudhry said pricing is still being worked out with the first couple of dozen customers and should firm up over the coming months.

Management’s fiscal 2027 ARR guide of 16% to 17% is what triggered the record 31.52% single-day drop after the May 26 earnings report, when a genuine beat was buried by cautious guidance and the departure of two senior sales leaders. The consumption pivot does not erase that. It changes what the growth is made of, and whether it can reaccelerate once agent traffic starts metering.

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Two recent moves show Zscaler positioning as the control layer for AI traffic. On July 28, Zscaler and Schwarz Digits, the IT division of Germany’s Schwarz Group, announced a partnership to run the Zscaler Zero Trust Exchange platform on Schwarz Digits’ STACKIT sovereign cloud in Germany. Zscaler says the sovereign Zero Trust SASE service is now available across Europe, hosted in German data centers and operated by STACKIT. It targets buyers who cannot use a US hyperscaler for compliance reasons, including public administration, defense, finance, and healthcare. On August 4, the Cloud Security Alliance named Zscaler a Vanguard member of its CSAI Foundation, alongside Qualys and Rubrik, a group focused on governing autonomous AI agents. Neither is a needle-mover alone, and neither produced a clean single-day move in a choppy tape. Both point in the same direction: Zscaler is planting itself where the AI-security layer gets defined.

On NTM EV/EBITDA, Zscaler sits near 25 times, right at the software-peer mean of roughly 25 times in its TIKR comparison set, while CrowdStrike trades near 113 times and Datadog near 63 times. Zscaler carries no growth premium against the group average. The counter is that its forward growth is decelerating faster than most of that peer set, so part of the discount is earned.

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TIKR Advanced Model Analysis

• Current Price: $168.68
• Target Price (Mid): ~$299
• Potential Total Return: ~77%
• Annualized IRR: ~15% / year

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The TIKR Valuation Model uses the mid case, realized at fiscal year-end 2030, landing on a target of around $299, a potential total return near 77%, and an annualized return of about 15% per year over four years. The model uses an entry price of $168.68, close to where shares trade now.

Two revenue drivers carry that number:

• Zero Trust Everywhere adoption, the customers running Zscaler for users, branches, and cloud workloads together, which passed 500 enterprises at Zenith Live out of a targeted base of roughly 20,000.
• The consumption layer, AI Protect, and the Agentic Exchange, where AI Protect alone crossed $100 million in trailing bookings in its first year.

The mid case assumes revenue compounds at around 14% annually, well below the recent 25%, so it is not betting on reacceleration. The margin driver is operating leverage, with net income margin modeled in the low-20s, after a record non-GAAP operating margin of 23% last quarter.

The primary risk is that same deceleration: if growth keeps sliding toward the mid-teens and the consumption model does not pick up the slack, the multiple has no reason to re-rate. The upside case is that token-based agent volume becomes a real revenue line and growth stabilizes, at which point an average multiple on an above-average grower looks like a mistake. The downside case is that seat erosion and slowing new-logo growth arrive faster than the consumption business scales, and the stock stays cheap because it deserves to.

Conclusion

The next real test is the fiscal fourth-quarter report, due in early September. Watch two lines. The first is the fiscal 2027 ARR guide: anything firming up above the 16% to 17% floor set in May would signal the deceleration is bottoming. The second is any update on non-seat ACV; if that share climbs past 30% again, the consumption pivot is compounding, and the seat-count case gets harder to defend. A clean guide plus a rising consumption mix is the good outcome. A guide-down with sales attrition still lingering is the bad one.

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Should You Invest in Zscaler?

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!