Earnings preview: Large deal likely to hurt Zscaler Q4 results

Zscaler Inc. (NASDAQ: ZS) is set to release its fourth-quarter earnings results on Tuesday, September 10, after the market closes. Investors remained concerned that the cloud security company could be hurt by a lagging growth when compared to the overall security market, as well as increased competition among the company’s channel partners.

However, the results are likely to demonstrate the leverage in its business model and its ability to drive growth and profitability. The company will continue to aggressively invest in its business for a significant market opportunity. Zscaler has a significant competitive advantage as a result of the technology, architecture, and maturity of the cloud security platform.

The company is likely to face a difficult comparison with a large public sector deal that closed in Q4 of 2018 as it added $16.5 million to billings and $26 million to the backlog. This could pose a difficult year-over-year comparison in Q4. The company plans to continue investing in sales organization and marketing programs as well as increased investments in technology platform and cloud infrastructure.

The enterprises are moving their applications to the cloud and the huge traction seen by cloud service providers is further evidence that the cloud is the future for data. Zscaler believes a robust future lies ahead as the need for cloud security increases due to the venture of enterprises into the cloud.

Analysts expect the company to report earnings of $0.01 per share on revenue of $82.79 million for the fourth quarter. In comparison, during the previous year quarter, Zscaler posted a loss of $0.01 per share on revenue of $56.17 million. The company has surprised investors by beating analysts’ expectations in all of the past four quarters.

Read: DocuSign Q2 earnings review

For the third quarter, Zscaler reported a wider loss due to higher costs and expenses despite a 61% jump in the top line. Calculated billings soared by 55% year-over-year and deferred revenue surged by 69%. The company made strategic investments in its business to capture significant market opportunity.

For the fourth quarter, the company expects total revenue in the range of $81 million to $83 million and adjusted earnings in the range of $0.01 to $0.02 per share. For fiscal 2019, the company predicts total revenue in the range of $298 million to $300 million and adjusted earnings in the range of $0.16 to $0.18 per share.

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