Zscaler Q2 Earnings Beat: Will Strong Guidance Lift the Stock?

Core Insights - Zscaler reported strong second-quarter fiscal 2025 results, with non-GAAP earnings of 78 cents per share, exceeding the Zacks Consensus Estimate by 13% and reflecting a year-over-year increase of 23.8% driven by revenue growth and cost management [1][2] - The company’s revenues for the second quarter reached $647.9 million, surpassing the Zacks Consensus Estimate by 2.2% and management's guidance of $633-$635 million, marking a year-over-year growth of 23.4% [2][3] - Following the positive results, Zscaler raised its fiscal 2025 guidance, projecting revenues between $2.64 billion and $2.654 billion, an increase from the previous forecast of $2.623 billion to $2.643 billion [9] Financial Performance - Zscaler's calculated billings increased by 18% year over year to $742.7 million, with the Americas contributing 54% of revenues, EMEA 30%, and Asia Pacific and Japan 16% [4] - The non-GAAP gross profit rose by 22.9% year over year to $520.8 million, while the non-GAAP gross margin contracted by 100 basis points to 80% [7] - Total non-GAAP operating expenses increased by 18.6% year over year to $380.4 million, accounting for 58.7% of revenues, resulting in a non-GAAP operating income of $140.5 million, up from $134.1 million in the prior year [7] Customer Metrics - Zscaler added multiple large customers across its offerings, achieving a net 12-month trailing dollar-based retention rate of 115% due to larger bundle sales and strong upsells [5] - The company had 620 customers with annualized recurring revenues (ARR) of $1 million or more, and 3,291 customers with ARR exceeding $100,000 at the end of the second quarter [6] Cash Flow and Balance Sheet - As of January 31, 2025, Zscaler reported $2.88 billion in cash, cash equivalents, and short-term investments, an increase from $2.71 billion as of October 31, 2024 [8] - The company generated operating cash flow of $179.4 million and free cash flow of $143.4 million during the second quarter, compared to $142 million and $100.8 million, respectively, in the year-ago quarter [8] Future Guidance - For fiscal 2025, Zscaler expects non-GAAP earnings per share in the range of $3.04 to $3.09, up from the previous guidance of $2.94 to $2.99, with the consensus estimate remaining at $2.99 [10] - For the third quarter of fiscal 2025, Zscaler projects revenues between $665 million and $667 million, indicating a year-over-year growth of 20.1% [10][11]