Zscaler Inc. (ZS) reported solid first-quarter earnings that beat expectations on both the top and bottom lines. So naturally, the stock got hammered. Welcome to Wall Street, where nothing makes sense.

The cloud security company posted revenue of $788.1 million for the quarter, sailing past the $773.75 million consensus estimate. That represented 26% growth compared to the same period last year. Adjusted earnings came in at 96 cents per share, crushing estimates of 86 cents. The company also announced that annual recurring revenue hit $3.204 billion.

By any reasonable measure, these are good numbers. CEO Jay Chaudhry certainly seemed pleased. "Our outstanding Q1 results demonstrate the strong demand we are experiencing for our Zero Trust and AI Security platform," he said. "With over $3.2B in Annual Recurring Revenue, growing over 25% year-over-year, and Rule-of-78 performance, I'm very pleased to share that an increasing number of customers are relying on our platform for better security, lower operational costs and reduced IT complexity."

Zscaler also dropped some interesting strategic news. The company recently acquired SPLX, an AI security firm that will beef up its Zero Trust Exchange platform with capabilities like shift-left AI asset discovery and automated red teaming. The company also surpassed $1 billion in software sales through the AWS Marketplace and opened new data centers in London and Paris.

Looking ahead, Zscaler guided second-quarter revenue to land between $797 million and $799 million, with adjusted earnings of 89 to 90 cents per share. That matched the Street's 89-cent estimate. For the full year, the company actually raised its revenue guidance to a range of $3.282 billion to $3.301 billion and expects annual recurring revenue between $3.698 billion and $3.718 billion.

So why the selloff? The market's reaction appears tied to a wave of analyst downgrades. While most maintained bullish ratings, they trimmed their price targets:

• Scotiabank's Patrick Colville kept his Sector Outperform rating but cut his target from $334 to $320.
• UBS analyst Roger Boyd maintained his Buy rating while lowering the target from $350 to $340.
• Stifel's Adam Borg stuck with Buy but reduced his target from $330 to $320.
• BofA Securities analyst Tal Liani held his Buy rating but trimmed the target from $355 to $335.
• Needham's Mike Cikos maintained Buy but made the biggest cut, dropping his target from $350 to $310.

Not everyone was bearish, though. JPMorgan and Bernstein analysts actually raised their price targets to $354 and $264, respectively.

Shares of Zscaler were down 9.71% at $261.60 on Wednesday following the earnings release.