Categories Analysis, Technology

After strong start to 2024, Zscaler (ZS) sees stable growth ahead

The company predicts continued strong growth in revenue and calculated billings for fiscal 2024

Cybersecurity company Zscaler, Inc. (NASDAQ: ZS) wrapped up the fiscal year on a high note, delivering strong numbers in the fourth quarter and issuing an optimistic outlook for 2024. The company bets on the growing demand for advanced cybersecurity solutions as enterprises modernize their legacy security systems.

Shares of Zscaler have more than halved in the past two years, as they entered a downward spiral since hitting a record high. A few months ago, the stock changed course and regained momentum after hitting a three-year low, but continued to underperform the market. The uptrend is likely to continue in the coming months, considering the company’s stable performance at a time when key players in the tech market are experiencing a slowdown due to macroeconomic uncertainties.

Zero Trust Model

Zscaler’s zero-trust architecture promises advanced security tools capable of addressing modern-day cyber threats. Currently, the tech firm is investing in product innovation to position itself to tap into opportunities created by the ongoing digital transformation. Recently, the company introduced new services including Zscaler Risk360 and Zero Trust Branch Connectivity, strengthening its Zero Trust Exchange cloud security platform. The cloud-native model makes it easier to scale as the business expands and is cheaper compared to on-site services, which the company does not provide.

From Zscaler’s Q4 2023 earnings call transcript:

“Cybersecurity remains the No. 1 IT priority, and having the right security architecture is fundamental to reducing cyber risk. According to our latest Zscaler ThreatLabZ VPN risk report, nearly half of enterprises reported they were targeted by cyber attackers who exploited a VPN vulnerability, and a third of enterprises fell victim to ransomware attacks within the past year. Growing cyber threats, including ransomware, are driving IT leaders to transform security from legacy network security to zero trust architecture.”

Q4 Outcome

In the fourth quarter of 2023, Zscaler’s earnings, excluding special items, more than doubled to $0.64 per share from $0.25 per share in the same period of the prior year. The positive outcome reflects a 43% jump in revenues to $455.0 million. At $719.3 million, calculated billings were up 38% year-over-year. The bottom line also benefitted from the recent cost-cutting measures. Both earnings and revenues far exceeded consensus estimates – interestingly the headline numbers topped expectations every quarter since the company started reporting results around five years ago.

Deferred revenue, a measure of money received for goods/services that have not yet been delivered, was $1.44 billion in Q4, which is up an impressive 41% from last year. Meanwhile, on an unadjusted basis, the company reported a net loss of $30.67 million or $0.21 per share, which marked an improvement from the year-ago quarter when it incurred a loss of $97.7 million or $0.69 per share.

Outlook

For fiscal 2024, the management expects revenues to grow and come in the range of $2.050 billion to $2.065 billion, and calculated billings in the $2.52-$2.56 billion range. Nevertheless, the projection indicates a slower growth compared to the prior year. It is looking for adjusted profit between $2.20 per share and $2.25 per share.

On Monday, ZS began the trading session higher after closing the previous session lower. In the past six months, the stock moved up around 46%.

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