Analysts defend Zscaler as shares fall despite earnings and guidance beat

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By Senad Karaahmetovic

Zscaler Inc (NASDAQ:ZS) shares plummeted almost 9% despite the company reporting better-than-expected FQ1 results and guidance.

Zscasler reported adjusted EPS of $0.29 on revenue of $355.5 million (+54% year-over-year), beating the consensus for earnings of $0.26 on revenue of $340.68M. Calculated billings were reported at $340.1M, again higher than the estimate of $335.5M.

"We delivered strong top line growth with improved operating profitability and increased free cash flow, once again performing at the Rule-of-80. We are seeing customers committing to our broader platform, driven by vendor consolidation and an elevated threat environment," said Jay Chaudhry, Chairman and CEO of Zscaler.

For its second fiscal quarter, Zscaler sees EPS in the range of $0.29 - $0.30, better than the consensus of $0.26, and revenue in the range of $364M - $366M, again ahead of the consensus of $359M.

For FY2023, Zscaler projects EPS in the range of $1.23 - $1.25 on revenue of $1.525B - $1.53B, beating the average analyst estimate for EPS of $1.18 on sales of $1.51B. Zscaler expects $1.93 - $1.94B in full-year calculated billings, modestly below the consensus of $1.94B.

“We are seeing customers committing to our broader platform, driven by vendor consolidation and an elevated threat environment,” said Chaudhry.

Morgan Stanley analysts cut the price target by 10% to $162 per share as the company’s results show Zscaler is “adjusting to the new macro reality.”

“A more modest beat & raise should be received well in the current environment, but ZS estimates did appear more de-risked than others. This partially formed the basis for ZS valuation premium vs high-growth peers,” the analysts wrote in a client note.

Truist analysts said lower-than-expected billings “overshadowed strong execution,” hence shares are trading lower in pre-market Friday. Still, they remain Buy-rated on ZS stock after “another strong beat.”

“ZS is benefiting from a favorable demand backdrop and secular tailwinds of digital transformation, cloud security, and Zero Trust architecture. Newer products, like ZDX and Zscaler for Workloads are now starting to drive customer growth in addition to increased upsell opportunity. We reiterate our Buy rating and $250 PT,” the analysts said to clients.