Zscaler (NASDAQ: ZS ) stock lost around 8% yesterday after the market close due to the Q3 earnings release. I tend to disagree with the market's reaction because the company delivered a solid quarter. Financial and critical business metrics demonstrated solidAs an investor who started my path five years ago with my own capital, I represent a blend of hands on experience and academic background in corporate finance. Due to my relatively young age I thrive on discovering long-duration growth opportunities and ...

Financial Data and Key Metrics - Revenue grew 26% YoY to $628 million, with Americas contributing 54%, EMEA 30%, and APJ 16% [33] - Calculated billings grew 13% YoY to $517 million, with unscheduled billings (new, upsell, and renewal) growing over 20% YoY [33][34] - Operating profit increased 50% YoY, with operating margin reaching a record 21% and free cash flow margin at 46% [9] - Remaining Performance Obligations (RPO) grew 26% YoY to $4.411 billion, with current RPO representing 49% of total RPO [34] - 12-month trailing dollar-based net retention rate was 114%, driven by larger bundles and faster upsells [35] - Gross margin was 80.6%, slightly down from 80.7% in the year-ago quarter [36] - The company ended Q1 with $2.7 billion in cash, cash equivalents, and short-term investments [37] Business Line Performance - Zero Trust Exchange platform and AI solutions drove bookings growth of over 30% [8] - ZPA (Zero Trust Private Access) is a significant growth driver, contributing over 40% of new and upsell business [66] - Emerging products, including ZDX, Zero Trust for Branch and Cloud, and AI analytics, are growing twice as fast as core products [22][79] - Data protection solutions are seeing strong demand, with a Fortune 500 pharma company doubling its annual spend with Zscaler [20] - ZDX Copilot and AI-powered solutions are contributing to large deal wins, such as a healthcare provider doubling its ZIA subscription to 60,000 seats [13] Market Performance - The company secured over 35% of Global 2000 and 45% of Fortune 500 companies [18] - Federal vertical saw a new cabinet-level agency win, now serving 14 of the 15 cabinet-level agencies, including the DoD [26] - International opportunities are expanding, with governments in Australia, the EU, Japan, Singapore, the UK, and the US planning to adopt Zero Trust architecture [27] Strategic Direction and Industry Competition - The company is leveraging AI to enhance its Zero Trust platform, focusing on securing AI applications, automating digital experiences, and improving cyber and data protection [10][12][14] - Zscaler is targeting the replacement of legacy firewalls and VPNs with its Zero Trust solutions, particularly in the context of hardware refresh cycles [71][72] - The company is shifting from opportunity-based selling to account-centric selling, resulting in stronger customer engagement and higher-quality pipeline [28][29] Management Commentary on Operating Environment and Future Outlook - Management highlighted strong demand for AI security offerings and a growing pipeline, with sales capacity strengthening due to lower attrition [52] - The company expects to continue growing the number of $1 million-plus and $5 million-plus customers, driven by a mature pipeline and strong partner engagements [29][30] - Full-year guidance includes revenue growth of 21-22% and billings growth of 19-20%, with free cash flow margin expected to be 23.5-24% [39][40] Other Important Information - The company will attend several upcoming conferences, including the UBS Global Technology and AI Conference and the Barclays Global Technology Conference [5] - CFO Remo Canessa announced his retirement after eight years with the company, during which Zscaler grew from less than $250 million to over $2.5 billion in ARR [42][45] Q&A Session Summary Question: Unscheduled billings growth and future expectations - Unscheduled billings grew 20% YoY, exceeding expectations, and is expected to remain strong in the second half of the fiscal year [51][52] Question: Data security and Microsoft Copilot integration - Zscaler is leveraging its integration with Microsoft to secure Copilot deployments, with a G2000 company signing a seven-figure deal for AI-powered data protection [59][60] Question: ZPA growth and VPN replacement cycle - ZPA is a significant growth driver, with over 40% of new and upsell business coming from ZPA and ZIA combined. The company sees a long runway for VPN replacement and Zero Trust adoption [65][66] Question: Firewall refresh opportunities - Zscaler is targeting customers with firewall refresh cycles, leveraging its Zero Trust SD-WAN and device segmentation solutions to replace traditional firewalls [71][72] Question: Emerging products and their contribution - Emerging products, including ZDX, Zero Trust for Branch and Cloud, and AI analytics, are growing twice as fast as core products and contributing to large deal wins [77][79] Question: Federal market and DoD opportunities - Zscaler continues to gain share in the federal market, with 14 of 15 cabinet-level agencies as customers. The company sees significant upsell opportunities in this vertical [102][103] Question: Data protection solution growth - Data protection solutions are growing faster than the overall business, driven by AI-related security concerns and comprehensive platform capabilities [118][119] Question: GSI-led deals and their impact - Global System Integrators (GSIs) are playing an increasingly important role in driving large deals, particularly in Zero Trust SD-WAN and device segmentation [113][114]

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[Q1 FY2025 Financial Highlights](index=1&type=section&id=First%20Quarter%20Fiscal%202025%20Financial%20Highlights) Zscaler reported strong financial results for the first quarter of fiscal 2025, with revenue growing **26%** year-over-year to **$628.0 million**, alongside significant improvements in profitability and robust cash flow Q1 FY2025 Key Financial Metrics (Year-over-Year) | Metric | Q1 FY2025 | Q1 FY2024 | Change | | :--- | :--- | :--- | :--- | | **Revenue** | $628.0M | $496.7M | +26% | | **Calculated Billings** | $516.7M | $456.6M | +13% | | **Deferred Revenue** | $1,783.7M | $1,399.5M | +27% | | **GAAP Net Loss** | ($12.1M) | ($33.5M) | +63.8% | | **Non-GAAP Net Income** | $124.3M | $86.4M | +43.9% | | **GAAP Net Loss Per Share** | ($0.08) | ($0.23) | +65.2% | | **Non-GAAP Net Income Per Share** | $0.77 | $0.55 | +40.0% | | **Cash from Operations** | $331.3M | $260.8M | +27.0% | | **Free Cash Flow** | $291.9M | $224.7M | +29.9% | - CEO Jay Chaudhry attributed the solid Q1 results to strong sales execution and growing customer engagements, highlighting the opportunities created by the combination of Zero Trust and AI[4](index=4&type=chunk) [Recent Business Highlights](index=1&type=section&id=Recent%20Business%20Highlights) Zscaler achieved a significant platform milestone, processing over half a trillion daily transactions, while strengthening leadership and expanding its ecosystem through enhanced integrations to advance Zero Trust security - The Zscaler cloud security platform surpassed a new scalability milestone of over **half a trillion daily transactions**, nearly 60 times the daily volume of Google searches[7](index=7&type=chunk) - Adam Geller was appointed as Chief Product Officer to accelerate innovation, particularly in the AI-driven security operations platform[8](index=8&type=chunk) - Announced new AI and Zero Trust integrations with the CrowdStrike Falcon® platform and four new integrations with Okta to enhance threat detection, response, and context-aware security for joint customers[8](index=8&type=chunk)[10](index=10&type=chunk) - The 2024 ThreatLabz report revealed that the Zscaler cloud blocked **45% more IoT malware transactions** compared to the previous year, indicating a proliferation of botnets across IoT devices[11](index=11&type=chunk) [Financial Outlook](index=2&type=section&id=Financial%20Outlook) Zscaler provided a positive outlook for both the upcoming quarter and the full fiscal year 2025, projecting Q2 revenue between $633 million and $635 million and full-year revenue between $2.623 billion and $2.643 billion Q2 Fiscal 2025 Outlook | Metric | Guidance | | :--- | :--- | | **Revenue** | $633M - $635M | | **Non-GAAP Income from Operations** | $126M - $128M | | **Non-GAAP Net Income per Share** | $0.68 - $0.69 | Full Year Fiscal 2025 Outlook | Metric | Guidance | | :--- | :--- | | **Revenue** | $2.623B - $2.643B | | **Calculated Billings** | $3.124B - $3.149B | | **Non-GAAP Income from Operations** | $549M - $559M | | **Non-GAAP Net Income per Share** | $2.94 - $2.99 | [Financial Statements](index=5&type=section&id=Financial%20Statements) The consolidated financial statements detail Zscaler's performance in Q1 FY2025, showing strong revenue growth, narrowing net loss, a solid cash position, and robust cash generation from operations [Consolidated Statements of Operations (Income Statement)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For the first quarter ended October 31, 2024, revenue increased by **26%** year-over-year to **$628.0 million**, with gross profit growing to **$486.5 million**, and GAAP net loss narrowing significantly to **$12.1 million** Q1 Statement of Operations (in thousands) | Metric | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | **Revenue** | $627,955 | $496,703 | | **Gross Profit** | $486,493 | $385,309 | | **Loss from Operations** | ($30,667) | ($46,057) | | **Net Loss** | ($12,051) | ($33,483) | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) As of October 31, 2024, Zscaler's balance sheet remains strong with total assets of **$4.71 billion**, cash and short-term investments totaling **$2.71 billion**, and total deferred revenue at **$1.78 billion** Key Balance Sheet Items (in thousands) | Metric | Oct 31, 2024 | Jul 31, 2024 | | :--- | :--- | :--- | | **Cash & Short-Term Investments** | $2,707,897 | $2,409,654 | | **Total Assets** | $4,709,002 | $4,704,968 | | **Total Deferred Revenue** | $1,783,720 | $1,894,974 | | **Total Liabilities** | $3,280,457 | $3,430,866 | | **Total Stockholders' Equity** | $1,428,545 | $1,274,102 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In the first quarter, Zscaler generated **$331.3 million** in cash from operating activities, a **27%** increase year-over-year, resulting in a strong free cash flow of **$291.9 million** with a **46%** margin Q1 Cash Flow Summary (in thousands) | Metric | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $331,335 | $260,806 | | **Net Cash used in Investing Activities** | ($201,660) | ($162,545) | | **Net Increase in Cash** | $130,565 | $99,517 | Free Cash Flow Calculation (in thousands) | Metric | Q1 FY2025 | Q1 FY2024 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $331,335 | $260,806 | | **Less: Purchases of property, etc.** | ($17,025) | ($28,659) | | **Less: Capitalized internal-use software** | ($22,429) | ($7,429) | | **Free Cash Flow** | $291,881 | $224,718 | [Non-GAAP Financial Measures](index=2&type=section&id=Non-GAAP%20Financial%20Measures) Zscaler utilizes non-GAAP metrics to provide supplemental insight into its operational performance, with key adjustments including the exclusion of stock-based compensation and a new projected **23%** non-GAAP tax rate for fiscal 2025 [Change in Non-GAAP Measures Presentation](index=2&type=section&id=Change%20in%20Non-GAAP%20Measures%20Presentation) Effective August 1, 2024, Zscaler adopted a long-term projected non-GAAP tax rate of **23%** for calculating non-GAAP net income and EPS to better reflect business performance and ensure consistency across reporting periods - Starting in fiscal 2025, the company is using a long-term projected non-GAAP tax rate of **23%** to determine non-GAAP net income and EPS for better consistency across reporting periods[12](index=12&type=chunk)[39](index=39&type=chunk)[50](index=50&type=chunk) [Reconciliation of GAAP to Non-GAAP Measures](index=8&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Measures) The reconciliation tables illustrate the adjustments made to arrive at non-GAAP figures, converting a GAAP operating loss of **$30.7 million** to a non-GAAP operating income of **$134.1 million** and a GAAP net loss of **$12.1 million** to a non-GAAP net income of **$124.3 million** for Q1 FY2025 Reconciliation of GAAP Loss to Non-GAAP Income from Operations (Q1 FY2025, in thousands) | Metric | Amount | | :--- | :--- | | **GAAP loss from operations** | **($30,667)** | | Add: Stock-based compensation | $160,574 | | Add: Amortization of intangibles | $4,240 | | **Non-GAAP income from operations** | **$134,147** | Reconciliation of GAAP Net Loss to Non-GAAP Net Income (Q1 FY2025, in thousands) | Metric | Amount | | :--- | :--- | | **GAAP net loss** | **($12,051)** | | Add: Stock-based compensation | $160,574 | | Add: Amortization of intangibles & debt costs | $5,221 | | Add: Tax adjustments | $29,481 | | **Non-GAAP net income** | **$124,263** | [Explanation of Non-GAAP Measures](index=11&type=section&id=Explanation%20of%20Non-GAAP%20Measures) Zscaler defines its key non-GAAP metrics, including Calculated Billings and Free Cash Flow, and explains the exclusion of non-cash expenses like stock-based compensation and amortization to provide a clearer view of ongoing operational performance - Calculated Billings is defined as revenue plus the change in deferred revenue in a period, reflecting amounts invoiced for subscriptions[51](index=51&type=chunk) - Free Cash Flow is defined as net cash provided by operating activities less purchases of property, equipment, and capitalized internal-use software[51](index=51&type=chunk) - The primary expenses excluded from non-GAAP measures are stock-based compensation (and related payroll taxes) and amortization of acquired intangible assets and debt issuance costs[50](index=50&type=chunk)

First Quarter Highlights Revenue grows 26% year-over-year to $628.0 millionCalculated billings grows 13% year-over-year to $516.7 millionDeferred revenue grows 27% year-over-year to $1,783.7 millionGAAP net loss of $12.1 million compared to GAAP net loss of $33.5 million on a year-over-year basis Non-GAAP net income of $124.3 million compared to non-GAAP net income of $86.4 million on a year-over-year basis SAN JOSE, Calif., Dec. 02, 2024 (GLOBE NEWSWIRE) -- Zscaler, Inc. (Nasdaq: ZS), the leader in cloud s ...

Core Viewpoint - Zscaler, Inc. is set to release its first-quarter earnings on December 2, with expectations of a decline in earnings per share and an increase in revenue compared to the previous year [1]. Financial Performance - Analysts predict Zscaler will report earnings of 63 cents per share, down from 67 cents per share in the same quarter last year [1]. - The company is projected to report revenue of $605.55 million for the recent quarter, up from $496.7 million a year earlier [1]. - In the fiscal fourth quarter, Zscaler reported revenue of $592.9 million, exceeding the consensus estimate of $567.933 million [2]. Stock Performance - Zscaler shares experienced a decline of 2.5%, closing at $204.96 [3]. Analyst Ratings - BTIG analyst Gray Powell maintained a Buy rating and raised the price target from $205 to $238 [5]. - Jefferies analyst Joseph Gallo maintained a Buy rating and increased the price target from $225 to $245 [5]. - Keybanc analyst Eric Heath maintained an Overweight rating and raised the price target from $220 to $245 [5]. - Barclays analyst Saket Kalia maintained an Overweight rating and increased the price target from $200 to $220 [5]. - Stifel analyst Adam Borg maintained a Buy rating and boosted the price target from $220 to $235 [5].

Core Insights - Zscaler Inc is set to report its fiscal first-quarter results on December 2, with consensus estimates of earnings at 63 cents per share and revenue at $605.7 million, indicating a 6% year-over-year decrease in earnings and a 21.9% year-over-year increase in revenue [1] Stock Performance - As of the latest update, Zscaler's stock was down 3.2% at $203.55, having experienced significant pullbacks in October but finding support at the 70-day moving average around the $180 level [2] - The stock has shown a year-to-date deficit of 8.5%, although it has recovered since the October lows [2] Historical Trends - Historically, Zscaler's stock tends to decline after earnings reports, with five out of the last eight sessions finishing lower, including an 18.6% drop in September [3] - The average stock movement post-earnings over the last eight quarters has been 8.4%, but options markets are currently pricing in a larger-than-usual swing of 10.9% for the upcoming report [3] Analyst Ratings - Ahead of the earnings report, BTIG has raised its target price for Zscaler from $205 to $238, representing a nearly 17% premium over the current stock price [4] - The stock's call/put volume ratio stands at 2.48, placing it in the 92nd percentile of annual readings, indicating strong bullish sentiment [4]

Zscaler (ZS) is scheduled to report first-quarter fiscal 2025 results on Dec. 2, after market close.For the first quarter, Zscaler projects total revenues to be between $604 million and $606 million. The Zacks Consensus Estimate is pegged at $605.7 million, which indicates growth of 21.9% from the year-ago quarter's level.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.Zscaler anticipates non-GAAP earnings per share (EPS) to be between 62 cents and 63 cents. The Zacks Consensus Esti ...

Wall Street analysts forecast that Zscaler (ZS) will report quarterly earnings of $0.63 per share in its upcoming release, pointing to a year-over-year decline of 6%. It is anticipated that revenues will amount to $605.68 million, exhibiting an increase of 21.9% compared to the year-ago quarter.Over the last 30 days, there has been no revision in the consensus EPS estimate for the quarter. This signifies the covering analysts' collective reconsideration of their initial forecasts over the course of this tim ...

Company Overview - Zscaler's stock closed at $210.42, reflecting a -0.26% change from the previous trading day's closing, underperforming the S&P 500's daily gain of 0.3% [1] - Over the past month, Zscaler's shares have increased by 14.06%, while the Computer and Technology sector gained 0.27% and the S&P 500 gained 2.1% [1] Upcoming Financial Results - Zscaler is set to announce its earnings on December 2, 2024, with an anticipated EPS of $0.63, representing a 5.97% decline compared to the same quarter last year [2] - The consensus estimate projects revenue of $605.68 million, indicating a 21.94% increase from the equivalent quarter last year [2] Annual Forecast - For the entire year, Zacks Consensus Estimates forecast earnings of $2.87 per share and revenue of $2.61 billion, reflecting changes of -10.03% and +20.57%, respectively, compared to the previous year [3] - Recent changes to analyst estimates for Zscaler suggest shifting dynamics in short-term business patterns, with positive revisions indicating analyst optimism about the company's business and profitability [3] Valuation Metrics - Zscaler currently has a Forward P/E ratio of 73.49, which is significantly higher than the industry average Forward P/E of 21.35 [6] - The company has a PEG ratio of 9.6, compared to the Internet - Services industry's average PEG ratio of 2.02 [6] Industry Context - The Internet - Services industry, part of the Computer and Technology sector, holds a Zacks Industry Rank of 41, placing it in the top 17% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]