Group 1 - Zscaler is viewed as largely insulated from market volatility, with minimal roadblocks to its growth trajectory and ongoing progress towards profitability [1] - The company is expected to continue delivering strong revenue growth, although caution is advised regarding future projections [1] - The investment strategy focuses on identifying undervalued companies with secular growth potential, emphasizing strong balance sheets and management teams [1]

Summary of the Conference Call Transcript Industry Overview - The U.S. software sector is currently facing two core issues: the potential recovery of IT spending by European and American enterprises and the progress of AI commercialization expected in 2025. These factors will jointly determine the sector's fundamentals and mid-term stock price trends [1][3][19]. Key Points on Company Performance - In Q4 2024, major U.S. software companies showed stable performance, but guidance remained conservative. Application software revenue exceeded expectations, while guidance for the full year was slightly below market expectations. Basic software also outperformed expectations, but guidance was mixed. Cybersecurity maintained high resilience, with innovative firms performing well [1][4]. - Specific performance metrics include: - Application Software: 14 major firms (e.g., Salesforce, ServiceNow) had an average revenue beat of 1.8% and a net profit beat of 14.3%. However, guidance for 2025 was conservative, with full-year revenue guidance averaging 0.1% below market expectations [4]. - Basic Software: 14 major firms (e.g., Snowflake, Oracle) also exceeded expectations, with ten firms beating by 1.1%. Non-GAAP operating profit margins exceeded the average by 34%. However, guidance for 2025 was conservative [4]. - Cybersecurity: 10 major firms (e.g., Zscaler, Palo Alto) showed an average revenue beat of 3% and non-GAAP operating profit margins of 30.2%. Innovative firms like Rubrik and Samsara performed exceptionally well [4]. AI Commercialization Insights - Several application and basic software companies are expected to enter the early stages of AI monetization in 2025. Companies are beginning to clarify their AI application monetization timelines, which will be a significant driver of future financial performance [1][5]. - Specific expectations for AI-related revenue include: - Salesforce anticipates minimal AI-related revenue contribution in 2025 but expects significant growth by 2026. SAP expects over 50% of cloud orders in Q4 2024 to include AI features, with further increases in 2025 [6][7]. - Technical software firms like MongoDB and others have shown clear revenue growth from AI-related products, indicating they may benefit more from market demand in 2025 [8]. Market Demand and Trends - The overall demand in the software sector is improving, with 59% of the 38 major software companies exceeding market expectations for 2025 guidance. IT spending is showing signs of recovery, particularly among medium to large enterprises, while SMB spending is gradually recovering [9][10]. - The software sector is expected to benefit from the recovery of cloud spending and increased demand for data management and workload management driven by AI developments in the first half of 2025 [13]. Future Investment Outlook - The basic software sector is projected to benefit from the recovery of cloud spending and AI developments, with a strong correlation to cloud-related vendors [13]. - In the second half of 2025, many application software firms are expected to enter the AI revenue realization cycle, with companies like ServiceNow and Monday anticipated to achieve stable performance [14]. - The ERP sector is also expected to accelerate, benefiting companies like SAP as they phase out local version support [15]. Cybersecurity Sector Insights - The cybersecurity sector is maintaining strong demand and high growth potential, with network security spending being a critical area that enterprises are reluctant to cut. New generation information technologies and firewall cycles are expected to resonate positively [2][16][17]. Conclusion - The recent market pullback has affected the U.S. software sector, but demand is stabilizing or slowly recovering. The AI commercialization benefits are expected to materialize in the second half of 2025. The overall IT spending environment remains positive, with specific sectors like financial software, application software, and cybersecurity entering an upward trajectory [18][19].

Group 1: Software Stocks Overview - Analysts are increasing targets for leading software stocks, indicating significant gains for companies like Snowflake, Okta, CrowdStrike, Workday, and Zscaler [1] - The overall sentiment is firming, with rising price targets providing a strong tailwind for these markets [1] Group 2: Snowflake - Snowflake is the most upgraded stock in March, receiving 21 updates from 39 analysts, raising the consensus price target to $205, representing a 30% gain from late-March levels [2][3] - The company's strong performance is attributed to top and bottom-line outperformance, sustained double-digit growth, and better-than-expected guidance [2] - New products and capabilities, including a deal with Microsoft to deploy OpenAI models, are driving results [3] Group 3: Okta - Okta is the second most upgraded stock in March, with 20 revisions lifting the price target to $115, nearly a 10% increase since the CQ4 2024 earnings report [7][8] - Analysts suggest a potential rise of 20% for Okta, supported by AI's dual tailwind, enhancing capabilities and driving demand [8] Group 4: CrowdStrike - CrowdStrike's Q4 performance was overshadowed by less-than-expected guidance, but analysts view the guidance as conservative, expecting sustained high double-digit growth [9][10] - Client growth and high-module adoption rates among large clients provide business leverage, leading analysts to reset expectations [11] Group 5: Workday - Workday's Q4 results show top and bottom-line strength, leading to a rising price target with a consensus indicating a 20% upside [12][13] - Analysts noted improving business trends and a clearer path to achieving a 30% margin, with a consensus rating of Moderate Buy from 31 analysts [13] Group 6: Zscaler - Zscaler received 10 updates from 32 analysts, with a consensus price target forecasting a 15% upside, and improvements in guidance noted as above-consensus [16][17] - The company is recognized for its healthy results and signs of diversification and upsell capability [17]

Annual ThreatLabz Report Reveals 36x More AI/ML Transactions in World’s Largest Security Cloud, Stressing the Need for Zero Trust Everywhere to Enable Secure GenAI Adoption and Stop AI-Powered Threats ThreatLabz 2025 AI Security Report Top AI Applications ChatGPT is the most popular AI/ML application, accounting for nearly half of all AI/ML transactions (45.2%) and is also the most-blocked AI application, followed by Grammarly, and Microsoft Copilot as the second and third most-blocked applications, resp ...

Core Viewpoint - Investors navigated a volatile trading week influenced by tariff rhetoric from the Trump administration, leading to weekly stock losses despite a rally on Friday [1] Group 1: Zscaler - Zscaler, a cloud-based cybersecurity company, is recognized for its Zero Trust Exchange platform, which protects users and applications from cyber threats [3] - The company reported strong second-quarter results for fiscal 2025, driven by the adoption of Zero Trust and artificial intelligence [3][4] - Analyst Shaul Eyal from TD Cowen reiterated a buy rating with a price target of $270, citing a revamped go-to-market strategy and improved sales productivity [4] - Zscaler's annual contract value from its AI Analytics portfolio nearly doubled year over year, with expectations to reach $3 billion in annual recurring revenue by the end of fiscal 2025 [5] - The company serves 14 of the 15 U.S. cabinet agencies and is expected to benefit from government efficiency initiatives [6] - The number of customers generating over $1 million in annual recurring revenue increased by 25% year over year to 620 [6] Group 2: Costco Wholesale - Costco Wholesale reported mixed results for the second quarter of fiscal 2025, with revenue exceeding expectations but earnings missing estimates [8] - Analyst Corey Tarlowe from Jefferies noted that the earnings miss was due to lower-than-expected gross margin expansion and forex headwinds, but highlighted strong comparable sales growth of 8.3% [9][10] - Costco's U.S. sales benefited from increased traffic and ticket growth, and the company has opportunities for further warehouse expansion [11] - The company confirmed that about one-third of its U.S. sales are imported, with less than half sourced from China, Mexico, and Canada, which may insulate it from tariff impacts [11][12] - Tarlowe raised the price target for Costco stock to $1,180 from $1,145 while maintaining a buy rating [12] Group 3: Karman Holdings - Karman Holdings, a defense and space systems manufacturer, recently went public and offers a diverse range of products [14] - Analyst Amit Daryanani from Evercore initiated coverage with a buy rating and a price target of $38, citing strong growth potential driven by various secular tailwinds [15] - Daryanani highlighted growth in U.S. orbital launch volume and increased focus on missile defense as key drivers for Karman's growth [16] - Fiscal 2025 sales are expected to grow 18% year over year to $409 million, with EPS projected at 36 cents and an EBITDA margin expansion to 31% [16]

Company Overview - Zscaler has seen its shares increase nearly 10% year-to-date, driven by strong financial performance in its fiscal 2025 second quarter, which ended January 31 [2] - The company specializes in cybersecurity software and is experiencing robust demand as businesses face increasing digital threats [2] Financial Performance - Zscaler reported revenue of $647.9 million for the fiscal 2025 second quarter, marking a 23% increase year-over-year and exceeding guidance of $634 million [9] - The company has raised its full-year revenue forecast for fiscal 2025 by $14 million to $2.647 billion [9] - Operating expenses grew by only 19% in the first half of fiscal 2025, slower than the nearly 25% revenue growth, indicating improved cost management [10] - Zscaler's net loss for the first half of fiscal 2025 was $19.7 million, a 68% reduction from the previous year's loss of $61.9 million [11] - On a non-GAAP basis, Zscaler achieved profitability of $251.8 million, a 35.1% increase compared to the first half of fiscal 2024 [12] Market Position and Strategy - Zscaler's stock remains 45% below its all-time high from 2021, suggesting potential for investment [3] - The company has shifted from a growth-at-all-costs strategy to a more balanced approach, focusing on sustainable growth and profitability [13] - Zscaler aims to create a "Zero Trust Everywhere" environment, with 130 customers currently adopting this approach and plans to triple that number in 18 months [8] Analyst Sentiment - The majority of analysts covering Zscaler stock have assigned it the highest buy rating, with no recommendations to sell [3][14] - The average price target for Zscaler's stock is $236.50, indicating an 18% potential upside, while the highest target suggests a 35% upside [15] Industry Context - The total addressable market for Zscaler is valued at $96 billion, indicating significant growth potential [16] - Cybercrime is projected to cause $10.5 trillion in damages globally in 2025, suggesting increasing demand for advanced cybersecurity solutions [17] - Zscaler's stock, previously overvalued at around $370, may have the potential to reclaim that level if it continues its current growth trajectory [18]

Core Insights - Zscaler has shown a 20% gain over the past six months, outperforming the S&P 500 index, which remained flat during the same period [1] - The company released its fiscal 2025 second-quarter results, which exceeded expectations and led to a positive outlook for the future [2][3] Financial Performance - Fiscal Q2 revenue increased by 23% year over year to $648 million, while earnings per share grew by 24% to $0.78, surpassing both guidance and consensus expectations [3] - Zscaler raised its fiscal 2025 revenue growth expectation to 22% and increased its operating profit estimate to $567 million from $554 million [4] Market Opportunity - The serviceable addressable market for Zscaler's cloud-based cybersecurity solutions is estimated at $96 billion, indicating significant growth potential [5] - The global data protection market is projected to exceed $500 billion in annual revenue by 2032, suggesting Zscaler can accelerate its growth rate [7] Customer Demand and Growth Metrics - Annual recurring revenue (ARR) from emerging products grew at twice the rate of core products, driven by demand for AI analytics and data protection solutions [6] - Remaining performance obligations (RPO) increased by 28% to $4.6 billion, indicating a higher volume of contracts being secured [8] Profitability and Valuation - Increased spending by existing customers and a larger customer base positively impacted Zscaler's operating profit margin, which rose by 2 percentage points year over year [9] - Zscaler trades at 12 times sales, higher than the U.S. technology sector index's multiple of 7.3, but its growth profile justifies this valuation [10] Future Projections - If Zscaler's revenue reaches $3.84 billion in a couple of fiscal years, its market cap could increase to $46 billion, representing a 43% rise from current levels [11]

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of Zscaler, Inc [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) Zscaler's unaudited condensed consolidated financial statements show increased assets, revenue growth, and reduced net losses [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Zscaler's balance sheet shows total assets increased to $5.01 billion, driven by cash, with liabilities slightly down and equity up Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2025 | July 31, 2024 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $1,758,506 | $1,423,080 | | Total current assets | $3,665,206 | $3,396,617 | | Total assets | $5,005,968 | $4,704,968 | | **Liabilities & Equity** | | | | Deferred revenue (current) | $1,595,780 | $1,643,919 | | Total current liabilities | $3,048,866 | $3,112,887 | | Total liabilities | $3,398,622 | $3,430,866 | | Total stockholders' equity | $1,607,346 | $1,274,102 | [Condensed Consolidated Statement of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Operations) Zscaler's statement of operations shows revenue growth of 23.4% for the quarter and a significant reduction in net loss Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Jan 31, 2025 | Three Months Ended Jan 31, 2024 | Six Months Ended Jan 31, 2025 | Six Months Ended Jan 31, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $647,900 | $524,999 | $1,275,855 | $1,021,702 | | Gross Profit | $499,402 | $407,800 | $985,895 | $793,109 | | Loss from operations | $(40,140) | $(45,457) | $(70,807) | $(91,514) | | Net loss | $(7,724) | $(28,469) | $(19,775) | $(61,952) | | Net loss per share | $(0.05) | $(0.19) | $(0.13) | $(0.42) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Zscaler's cash flow statement shows strong operating cash flow of $510.8 million and a significant increase in cash and cash equivalents Cash Flow Summary for Six Months Ended January 31 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $510,768 | $402,875 | | Net cash used by investing activities | $(201,142) | $(248,750) | | Net cash provided by financing activities | $25,800 | $22,255 | | **Net increase in cash and cash equivalents** | **$335,426** | **$176,380** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=13&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes detail Zscaler's accounting policies and provide further information on revenue, obligations, acquisitions, and tax benefits - Zscaler is a cloud security company providing its platform via a **SaaS model**, with financial statements prepared under **U.S. GAAP**[39](index=39&type=chunk) - The **United States** remains the largest market, accounting for **51% of revenue**, with **89% of sales** generated through channel partners[51](index=51&type=chunk) - As of January 31, 2025, remaining performance obligations (RPO) totaled **$4.62 billion**, with **49%** expected to be recognized as revenue within 12 months[55](index=55&type=chunk) - The acquisition of **Fidenty B.V.** was completed on December 19, 2024, for **$1.1 million**, recognizing **$0.7 million** in goodwill[71](index=71&type=chunk) - A **$17.2 million tax benefit** was recognized due to the release of the valuation allowance on **U.K. deferred tax assets**, reflecting sustained profitability in the region[104](index=104&type=chunk)[107](index=107&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Zscaler's performance, highlighting 25% revenue growth, elongated deal cycles, and strong liquidity [Overview and Key Business Metrics](index=33&type=section&id=Overview%20and%20Key%20Business%20Metrics) Zscaler's overview highlights its cloud-native security platform, subscription revenue model, and the impact of macroeconomic conditions on deal cycles and retention rates - The company generates revenue primarily from **subscriptions** to its cloud platform, serving over **8,650 customers** as of July 31, 2024[113](index=113&type=chunk) - Macroeconomic conditions are leading to increased **customer scrutiny** and **elongated approval processes** for transactions, especially larger deals[115](index=115&type=chunk) - The **dollar-based net retention rate** was **115%** for the trailing 12 months ended January 31, 2025, a slight decrease from 117% a year prior[123](index=123&type=chunk) [Non-GAAP Financial Measures](index=36&type=section&id=Non-GAAP%20Financial%20Measures) Zscaler utilizes non-GAAP measures like operating income, free cash flow, and calculated billings to assess performance, showing strong margins and growth Non-GAAP Operating Results (in thousands) | Metric | Three Months Ended Jan 31, 2025 | Three Months Ended Jan 31, 2024 | | :--- | :--- | :--- | | Non-GAAP income from operations | $140,461 | $103,162 | | Non-GAAP operating margin | 22% | 20% | Free Cash Flow (in thousands) | Metric | Three Months Ended Jan 31, 2025 | Three Months Ended Jan 31, 2024 | | :--- | :--- | :--- | | Free cash flow | $143,428 | $100,788 | | Free cash flow margin | 22% | 19% | Calculated Billings (in thousands) | Metric | Three Months Ended Jan 31, 2025 | Three Months Ended Jan 31, 2024 | | :--- | :--- | :--- | | Calculated billings | $742,685 | $627,630 | [Results of Operations](index=42&type=section&id=Results%20of%20Operations) Zscaler's results show 23% quarterly revenue growth, a slight gross margin decrease, and an 11% increase in operating expenses, driven by R&D investments Revenue Comparison - Three Months Ended Jan 31 | Period | Revenue (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | | Q2 FY25 | $647,900 | $122,901 | 23% | | Q2 FY24 | $524,999 | | | Operating Expenses Comparison - Three Months Ended Jan 31 (in thousands) | Expense Category | Q2 FY25 | Q2 FY24 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Sales and marketing | $307,872 | $276,481 | $31,391 | 11% | | Research and development | $170,860 | $122,181 | $48,679 | 40% | | General and administrative | $60,810 | $54,595 | $6,215 | 11% | - The decrease in income tax provision was primarily due to a **$17.2 million tax benefit** from the release of the valuation allowance on **U.K. deferred tax assets**[170](index=170&type=chunk)[174](index=174&type=chunk) [Liquidity and Capital Resources](index=51&type=section&id=Liquidity%20and%20Capital%20Resources) Zscaler maintains strong liquidity with $2.88 billion in cash and investments, sufficient to meet operational and debt obligations for the next 12 months - Principal sources of liquidity as of January 31, 2025, were cash, cash equivalents, and short-term investments totaling **$2.88 billion**[193](index=193&type=chunk) - The company has **$1.15 billion** in convertible senior notes due 2025, now classified as a current liability[194](index=194&type=chunk)[361](index=361&type=chunk) Cash Flow Summary for Six Months Ended January 31 (in thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $510,768 | $402,875 | | Net cash used by investing activities | $(201,142) | $(248,750) | | Net cash provided by financing activities | $25,800 | $22,255 | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Zscaler is exposed to market risks, including interest rate fluctuations on investments and convertible notes, and foreign currency risk on operating expenses - The company is exposed to **interest rate risk** on its **$2.88 billion** in cash and investments, with a 100 basis point change impacting available-for-sale securities by **$11.1 million**[213](index=213&type=chunk) - The fair value of the **$1.15 billion convertible senior notes** is sensitive to **interest rate risk** and fluctuations in the company's common stock price[216](index=216&type=chunk) - A portion of operating expenses are denominated in foreign currencies, which the company hedges using **foreign currency forward contracts**[217](index=217&type=chunk)[219](index=219&type=chunk) [Item 4. Controls and Procedures](index=57&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that Zscaler's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The **CEO and CFO** concluded that Zscaler's **disclosure controls and procedures were effective** at a reasonable assurance level as of January 31, 2025[222](index=222&type=chunk) - No **material changes** in internal control over financial reporting occurred during the three months ended January 31, 2025[223](index=223&type=chunk) [PART II. OTHER INFORMATION](index=58&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, and other disclosures for Zscaler, Inc [Item 1. Legal Proceedings](index=58&type=section&id=Item%201.%20Legal%20Proceedings) Zscaler is involved in various legal matters, but management anticipates no material adverse effect on financial results or operations - There are no pending or threatened legal proceedings expected to have a **material adverse effect** on the company's financial results or operations[92](index=92&type=chunk)[227](index=227&type=chunk) [Item 1A. Risk Factors](index=58&type=section&id=Item%201A.%20Risk%20Factors) This section details Zscaler's key risks, including profitability challenges, intense competition, reliance on partners, security breaches, and convertible debt - The company has a history of **net losses** and may not achieve or sustain profitability while investing in growth[231](index=231&type=chunk) - The business faces **intense competition** from large networking and security vendors, potentially leading to market share loss[247](index=247&type=chunk) - A majority of revenue is derived from sales through **channel partners**, and maintaining these relationships is crucial to the business[246](index=246&type=chunk) - Actual or perceived **security failures** of the cloud platform could damage reputation, leading to customer loss and potential legal liability[260](index=260&type=chunk)[293](index=293&type=chunk) - The company's ability to service its **convertible notes due in 2025** depends on future performance and cash flow, with conversion potentially impacting financial condition[360](index=360&type=chunk)[361](index=361&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=101&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or issuer purchases of equity securities during the quarter - There were **no unregistered sales of equity securities** or issuer repurchases of equity securities during the period[383](index=383&type=chunk)[384](index=384&type=chunk) [Item 5. Other Information](index=101&type=section&id=Item%205.%20Other%20Information) Syam Nair, Zscaler's CTO, adopted a Rule 10b5-1 trading plan to potentially sell up to 28,947 shares of common stock - Syam Nair, the company's CTO, adopted a **Rule 10b5-1 trading plan** on December 18, 2024, to sell up to **28,947 shares of common stock**[385](index=385&type=chunk) [Item 6. Exhibits](index=102&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including CEO and CFO certifications and XBRL data - The report includes filed exhibits such as **CEO and CFO certifications** under Sarbanes-Oxley Sections 302 and 906, and **XBRL interactive data files**[387](index=387&type=chunk)[388](index=388&type=chunk)

Zscaler NASDAQ: ZS can set a fresh multiyear high in 2025, and the move could come before mid-year and happen quickly. It could happen soon because the company’s results and guidance are better than expected, and the analysts are re-engaging with the market. Zscaler Stock Forecast Today12-Month Stock Price Forecast:$232.8415.18% Upside Moderate BuyBased on 33 Analyst RatingsHigh Forecast$270.00Average Forecast$232.84Low Forecast$170.00Zscaler Stock Forecast DetailsAnalysts' sentiment didn’t sour in 2024, bu ...

Now you can get access to the latest and highest-quality analysis of recent Wall Street buying and selling ideas with just one subscription to Beyond the Wall Investing ! There is a free trial and a special discount of 10% for you. Join us today!My first and only article on Zscaler, Inc. (NASDAQ: ZS ) stock came out in July 2023 with a "Hold" rating. At the time I was arguing that ZS investors were overpaying for the stock compared even toDaniel Sereda is chief investment analyst at a family office whose in ...