Zscaler (ZS) Establishes Trust With Investors Today Following Excellent JulQ Results
1:29 pm Friday, September 09th, 2022
Zscaler (ZS) is establishing trust with investors today after crushing consensus on its top and bottom lines in Q4 (Jul), as well as providing an upbeat FY23 outlook. Although huge numbers are a recurring theme for the zero trust cybersecurity firm, its Q4 results are significant given the many concerning comments expressed lately by its peers, including Okta (OKTA), CrowdStrike (CRWD), and SentinelOne (S). These companies noted that the shaky macroeconomic backdrop lengthened sales cycles and spurred increased cost consciousness within organizations’ IT departments.
Although ZS was not immune to these headwinds, stating that there was more deal scrutiny toward the end of Q4, it successfully navigated these pressures by offering more value assessments, helping it close many large multi-year, multi-product deals. As a result, the stock’s relatively lofty valuation of ~15x FY23 sales is not getting in its way today, especially given the numerous highlights the company delivered in Q4.
By posting beats on its top and bottom lines in Q4, ZS extended its streak of never missing estimates in either metric since its 2018 IPO. Adjusted EPS grew 78.6% yr/yr to $0.25 while revs jumped 61.4% to $318.06 mln. Meanwhile, calculated billings, grew 57% to $520.4 mln.
Growth was broad-based, with strong demand across ZS’s products, industry verticals, and geographies. Still, there were a few standouts, such as the finance, manufacturing, health care, and technology markets, as well as the Americas and Asia Pacific Japan (APJ), which saw revs leap 52% and 88% yr/yr, respectively.
Looking ahead, ZS provided its first glimpse into FY23, expecting adjusted earnings of $1.16-1.18, revs of $1.49-1.50 bln, and billings of $1.92-1.94 bln, each representing over 30% growth yr/yr and topping analyst expectations. Gross margins are expected to dip slightly to around 80% in FY23. However, this is due to ZS’s focus on time to market and growth rather than margins. Also, the company remains confident of achieving operating margins of 20-22% in the long term, a significant jump from just 12% in Q4.
With shares down roughly 50% on the year leading into ZS’s Q4 earnings report, its results are sparking a much-needed relief rally today. ZS’s ability to close deals during a period where organizations are becoming more nervous about the macro economy is significant, as it demonstrates ZS’s capability to thrive even during a shaky economic period.
