Core Insights - Zscaler operates in the rapidly growing SASE (Secure Access Service Edge) market, which is attracting new entrants and raising concerns about potential commoditization [1] - The company is focusing on expanding beyond its historical markets of ZIA (Zscaler Internet Access) and ZPA (Zscaler Private Access) to identify new growth opportunities [1] - There is an observed acceleration in orders and bookings, indicating positive growth trends for Zscaler [1] Company Strategy - Zscaler is addressing the challenge of new market entrants by exploring strategies to differentiate its offerings and mitigate commoditization risks [1] - The company is actively seeking to grow its business by venturing into new areas beyond its established services [1] Market Dynamics - The SASE market is characterized by fast growth, presenting both risks and opportunities for companies like Zscaler [1] - The competitive landscape is evolving, necessitating a proactive approach from Zscaler to maintain its market position [1]

Summary of Zscaler (ZS) 2025 Conference Call Company Overview - **Company**: Zscaler (ZS) - **Industry**: Cybersecurity, specifically focusing on Secure Access Service Edge (SASE) and Zero Trust security models Key Points and Arguments Market Dynamics - SASE is a rapidly growing space with increasing competition and new entrants [1] - Zscaler is experiencing accelerating order bookings and growth beyond its historical markets of ZIA (Zscaler Internet Access) and ZPA (Zscaler Private Access) [1][2] Growth Opportunities - Zscaler identifies three major areas of opportunity: 1. Data security, which is becoming increasingly complex, especially with AI integration [5] 2. Agentic operations, leveraging AI to enhance security and IT operations [5] 3. Expansion into new markets beyond traditional offerings [5][12] Zero Trust Security Model - The concept of Zero Trust is evolving, with a shift from user-centric to encompassing cloud workloads, IoT, and AI agents [7][9] - Zscaler's Zero Trust Exchange is positioned as a comprehensive solution for secure communication across various entities [9] Product Development and Innovation - Zscaler has expanded its offerings to include a B2B collaboration exchange and enhanced capabilities for securing AI applications [9] - The company emphasizes the importance of a single vendor for data protection to simplify complex data protection policies [11] Customer Engagement and Sales Strategy - The sales approach has shifted from transactional to account-focused, enhancing customer relationships and sales productivity [62] - Zscaler's solutions are designed to reduce costs significantly for customers, with examples of cost reductions of 50-70% for large enterprises [33] Competitive Landscape - Zscaler faces competition from traditional firewall companies that are attempting to pivot to SASE solutions, but the company believes these offerings do not meet the true Zero Trust criteria [38][39] - The company maintains a strong brand reputation among CIOs and CISOs, focusing on ROI and value delivered rather than just pricing [44] Financial Performance and Metrics - Zscaler reported over $350 million in Annual Recurring Revenue (ARR) from data security, indicating strong growth potential in this area [75] - The company is focused on upselling existing customers, with a reported 40% increase in new logo Annual Contract Value (ACV) year-over-year [56] Data Protection Strategy - Zscaler's approach to data security emphasizes securing data rather than the network itself, positioning itself as a leader in Data Loss Prevention (DLP) [69] - The company has developed a flexible pricing model (Z Flex) to allow customers to choose and adapt their data protection modules according to their needs [78] Future Outlook - Zscaler is optimistic about the future, with plans to expand its Zero Trust offerings to branches and workloads, indicating a phased approach to market penetration [37][50] - The company is committed to continuous innovation and customer satisfaction, aiming to delight customers and win more business [86] Additional Important Insights - The transition to Zero Trust is seen as essential for modern cybersecurity, moving away from traditional firewalls and SD WANs [26] - Zscaler's focus on simplifying security operations and reducing complexity is viewed as a critical factor for resilience in enterprises [34][35] - The company acknowledges the presence of late adopters in the market but believes that its solutions will eventually become mainstream as more enterprises recognize the need for Zero Trust [36]

Group 1 - The core viewpoint of the articles highlights the rapid growth of the SASE (Secure Access Service Edge) market in China, with a year-on-year increase of 37.8%, reaching a market size of approximately 1.14 billion yuan in 2024 [2] - South Ling Technology (南凌科技) ranks fourth in the Chinese SASE market, indicating its strong position among competitors such as Sangfor, Volcano Engine, Huawei, and China Telecom [2] - By 2026, it is predicted that 60% of global enterprises will enhance edge security through the deployment of SD-WAN and security capabilities in an "as-a-service" model, reflecting a significant trend towards integrated solutions [1][2] Group 2 - South Ling Technology plans to focus on domestic markets while also expanding internationally, aiming to build a robust SASE service network globally [2] - The company intends to leverage its brand and proprietary products to collaborate with international partners, facilitating the "going out" of Chinese enterprises and the "coming in" of foreign businesses [2] - In 2024, South Ling Technology is integrating AI models like Zhipu and Tongyi Qianwen into its operations for data processing and customer service, showcasing its commitment to innovation and technology advancement [3]

Core Insights - Fortinet (FTNT) and Cisco Systems (CSCO) are significant players in the network security market, with Fortinet focusing solely on security and Cisco integrating security with broader networking solutions [1][2] Market Overview - The network security market is projected to grow from $24.95 billion in 2025 to $42.93 billion by 2030, reflecting a CAGR of 11.47% during the forecast period [2] Fortinet's Performance - Fortinet has shown strong momentum in network security, maintaining its position as the leading firewall vendor globally and achieving double-digit growth in FortiGate hardware revenues [3][4] - The unified Secure Access Service Edge (SASE) platform has been a key growth driver, with 18% year-over-year growth in SASE billings and a 73% penetration rate in large enterprise SD-WAN [4][6] - The launch of the FortiGate 700G series has enhanced Fortinet's competitive edge, delivering 5x to 10x performance over competitors [5] - Fortinet's sovereign SASE solution is gaining traction in regulated sectors, ensuring compliance while maintaining performance [6] Cisco's Performance - Cisco's network security business reported strong results, with security orders rising in the high double digits year over year, driven by product innovation and customer demand [7] - The company added over 370 new customers, benefiting from partnerships that enhance its AI-ready secure infrastructure [8] - Despite strong performance, Cisco faces challenges with historical growth comparisons and uncertainties related to tariffs and macroeconomic conditions [9] Stock Performance and Valuation - Year-to-date, FTNT shares have returned 10.2%, outperforming CSCO's 7.7% gain and the sector's decline of 1.5% [10] - FTNT's forward 12-month P/S ratio is 11.16X, significantly higher than CSCO's 4.38X, reflecting investor confidence in FTNT's growth potential [13] - The Zacks Consensus Estimate for FTNT's 2025 earnings is $2.47 per share, indicating a 4.22% year-over-year increase, while CSCO's estimate is $3.73 per share, showing no change year over year [16][17] Investment Outlook - Fortinet presents a stronger investment opportunity with consistent double-digit revenue growth and expanding SASE adoption [19] - Cisco, while promising, faces delayed revenue realization and macro uncertainties, making its near-term outlook less compelling compared to Fortinet [20]

Financial Data and Key Metrics Changes - The company reported a revenue growth of 14%, reaching $1,540,000,000, with product revenue increasing by 12% to $459,000,000 [14][15] - Total billings grew 14% to $1,600,000,000, driven by 18% growth in unified SaaS and 29% growth in AI-driven SecOps [14][15] - The operating margin reached a record 34%, exceeding the high end of guidance by 320 basis points [17][31] - Free cash flow was a record $783,000,000, representing a margin of 51% [17] Business Line Data and Key Metrics Changes - Unified SaaS billing growth was 18%, accounting for 25% of total business, while secure operations and unified SaaS saw strong growth with security service edge billing growth over 110% [7][14] - Security subscriptions revenue increased by 16%, while support and related service revenues grew by 12% [15][16] - AI-driven security operations accounted for 10% of the business, with a 29% increase in revenue [9][10] Market Data and Key Metrics Changes - EMEA was the best-performing geography with mid-teens growth, particularly in financial services and government sectors, which grew over 20% [24][25][101] - The number of new logos increased by 14% to over 6,300, driven by investments in channel partners [14][15] Company Strategy and Development Direction - The company aims to become the number one player in the SASE market, leveraging its strong SASE strategy and unified operating system [19][20] - Continued investment in AI capabilities is expected to drive growth, with over 500 issued and pending AI patents [10] - The company is focusing on expanding its offerings in OT security and AI as key growth drivers over the next five years [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for cybersecurity solutions despite geopolitical uncertainties, with a growing pipeline and robust close rates [26][27] - The company is maintaining its full-year guidance to account for potential top-line risks associated with the evolving geopolitical environment [29][31] - The management noted that the firewall upgrade cycle is expected to gain momentum in the second half of 2025 [30] Other Important Information - The company announced a transition in CFO roles, with Keith Jensen stepping down and Christiana Ohlgart taking over [3][4] - The company has not seen significant impacts from U.S. tariffs in Q1 and does not expect meaningful impacts in Q2 [27][73] Q&A Session Summary Question: Dynamics behind maintenance and services revenue - Management explained that the slight decline was affected by Q4 having two more days than Q1, impacting daily revenue rates [38][39] Question: Guidance for the next quarter - Management indicated that while there is good momentum, they are being cautious due to geopolitical uncertainties [46][47] Question: Customer hesitancy in purchasing - Management noted that while there is hesitancy, they have not seen delays yet, and positive feedback from channel activities is expected to resolve this [54][55] Question: Large transactions and their drivers - Management confirmed that large transactions are primarily driven by SD WAN deployments, with customers buying additional solutions [67] Question: Impact of tariffs on margins - Management stated that they do not expect significant impacts from tariffs in Q1 or Q2, as only a few products are subject to tariffs [73][75] Question: Changes in channel partner behavior ahead of tariffs - Management reported no specific acceleration of deals due to tariffs, although there were inquiries about potential price increases [77][79] Question: Upcoming refresh cycle assumptions - Management indicated that smaller customers are buying more, while larger customers' strategies vary based on consolidation or upgrading [119][120]

Financial Data and Key Metrics Changes - Fortinet reported a revenue growth of 14% year-over-year, reaching $1,540,000,000 in Q1 2025, with product revenue increasing by 12% to $459,000,000 [12][14] - The operating margin reached a record 34%, reflecting strong gross margins and cost efficiencies [16][30] - Free cash flow was a record $783,000,000, with a margin of 51%, up six points from the previous year [16] Business Line Data and Key Metrics Changes - Unified SaaS billing grew by 18%, driven by a 110% increase in security service edge billing, accounting for 25% of the business [6][13] - AI-driven security operations revenue increased by 29%, representing 10% of total business [9][10] - Security subscriptions revenue grew by 16%, while support and related service revenues increased by 12% [15] Market Data and Key Metrics Changes - EMEA was the best-performing geography with mid-teens growth, particularly in financial services and government sectors, which grew over 20% [24][95] - The number of new logos increased by 14% to over 6,300, driven by investments in channel partners [13][14] - Large enterprise customers showed a growth of around 30%, with an increase in deals greater than $1,000,000 [23] Company Strategy and Development Direction - Fortinet aims to maintain its leadership in the firewall market and expand its presence in the SASE and OT security markets [6][10] - The company is focusing on integrating AI capabilities into its products, holding over 500 AI patents, and enhancing its SASE strategy [10][11] - Fortinet is also investing in Sovereign SASE solutions for large enterprises and service providers, ensuring compliance with local regulations [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the continued adoption of Fortinet solutions despite macroeconomic uncertainties, citing strong customer demand [18][25] - The company is cautious in its guidance due to potential risks from geopolitical factors but remains optimistic about achieving growth targets [28][30] - The upcoming firewall upgrade cycle is expected to gain momentum in the second half of 2025 [29] Other Important Information - The company announced the FortiGate 700 series, a high-performance firewall aimed at mid-sized businesses, which is expected to enhance market share [11] - Infrastructure investments decreased to $67,000,000, reflecting a lower level of real estate investment [17] Q&A Session Summary Question: Dynamics behind maintenance and services revenue - Management explained that the slight decline in service revenue was affected by fewer days in Q1 compared to Q4, impacting daily revenue rates [36][38] Question: Lightness in guidance for the next quarter - Management acknowledged some uncertainty in customer purchasing decisions due to geopolitical factors but noted strong close rates and sales momentum [44][45] Question: Conversations with customers regarding hesitancy to commit - Management indicated that while there is hesitancy due to macro news, they have not seen delays in deals yet [50][51] Question: Impact of tariffs on hardware sales - Management stated that tariffs are not expected to have a significant impact on operating margins, as only a few components are subject to tariff charges [68][70] Question: Large transactions and their representation of the Fortinet platform - Management confirmed that large transactions are primarily driven by SD WAN deployments, with customers expanding into the Fortinet security fabric [63][64] Question: Service revenue downtick and customer refresh dynamics - Management noted that the service revenue decline was partly due to customers refreshing appliances without adding new subscriptions [84][91]

Core Viewpoint - Fortinet's valuation is a concern for investors as it trades at a significant premium compared to the broader Zacks Security industry, with a Price/Book ratio of 53.65 versus the industry's 25.04, indicating high growth expectations from investors [1][2] Valuation Concerns - The current Price/Book ratio of Fortinet is 53.65, significantly higher than the industry average of 25.04, suggesting a stretched valuation [1] - The Value Score of F indicates that Fortinet's valuation is currently stretched [1] Competitive Landscape - Fortinet operates in a highly competitive cybersecurity market, facing strong competition from companies like Palo Alto Networks, Zscaler, and CrowdStrike [5] - Competitors are rapidly innovating and making strategic acquisitions, which could impact Fortinet's market share and technological relevance if it fails to keep pace [6][7] Macroeconomic Pressures - Fortinet is experiencing pressures from macroeconomic uncertainties, including trade tensions and economic instability in key markets such as Latin America, Mexico, and Canada [8] - The company faces potential disruptions in the U.S. federal market due to staffing issues, which could negatively affect sales [8] - Broader stock market weakness and high interest rates are also impacting Fortinet, making its elevated valuations more risky [9] Earnings Estimates - The Zacks Consensus Estimate for Q1 2025 earnings is 53 cents per share, indicating a year-over-year growth of 23.26%, with revenues expected to reach $1.54 billion, reflecting a 13.54% year-over-year growth [11] - Fortinet has consistently beaten earnings estimates in the past four quarters, with an average surprise of 24.76% [11] Stock Performance - Fortinet shares have gained 10.3% year-to-date, outperforming the Zacks Computer and Technology sector and the S&P 500 index, which declined by 10.7% and 5.8%, respectively [13] - The company's outperformance is attributed to its strong position in the SASE solutions market, which is seeing accelerated adoption [14] Growth Drivers - Fortinet's growth is driven by its Unified SASE strategy integrated into the FortiOS operating system, providing seamless networking and security [16] - SASE Annual Recurring Revenue (ARR) has grown by 96%, and FortiSASE deals have increased by 60% in 2024, indicating strong customer interest and adoption [17] - A recent partnership with Vodafone Business aims to expand Fortinet's reach in European markets, enhancing its growth potential [18] Conclusion - Current valuations suggest that investors might benefit from waiting for a better entry point, as Fortinet's strengths are countered by challenges from increased competition and macroeconomic uncertainties [19][20]

Financial Data and Key Metrics Changes - The company reported a total revenue growth of 17% for Q4 2024, reaching $1.66 billion, with product revenue increasing by 18% to $574 million, marking the highest growth rate in six quarters [11][15]. - Operating margin reached a record 39.2%, reflecting strong gross margins and favorable foreign exchange impacts [17]. - Free cash flow was $380 million, with a free cash flow margin of 23%, up 11 points year-over-year [18]. Business Line Data and Key Metrics Changes - Unified SASE billing grew by 85%, contributing to a 13% growth in total unified SaaS billing, which accounted for 23% of the business [7][12]. - Security operations and unified SASE ARR grew by 32% and 28%, respectively, with combined revenue exceeding $1.5 billion [12][19]. - The company added a record 6,900 new logos in Q4, driven by strong channel partner alignment [11]. Market Data and Key Metrics Changes - EMEA was the best-performing geography with over 25% growth, while government and service provider verticals grew over 20% [15]. - The SMB segment was the top-performing customer segment, achieving over 30% growth [14]. Company Strategy and Development Direction - Fortinet continues to focus on a single vendor SASE strategy, integrating multiple security functions into a single operating system, FortiOS, which enhances user experience and security [7][9]. - The company aims to leverage its unique ASIC technology to drive growth in secure networking and AI-driven security solutions [9][23]. - Fortinet's acquisition of Perception Point aims to enhance its cybersecurity offerings by extending protection beyond email to the entire modern workspace [8]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth potential within the secure networking space, anticipating that it will surpass traditional networking by 2026 [9]. - The company acknowledged potential challenges from tariffs and geopolitical factors affecting demand, particularly in Latin America and Canada [42][66]. - Management expects continued momentum in the second half of 2025, particularly related to the upcoming service dates for existing customers [25]. Other Important Information - The company announced the retirement of CFO Keith Jensen, with Christiana Ohlgart set to take over [28][30]. - Fortinet was recognized as the seventh most trusted company in its market by Forbes, highlighting its commitment to transparency and customer trust [10]. Q&A Session Summary Question: Involvement with hyperscalers like Oracle - Fortinet is involved in securing data centers for hyperscalers, leveraging its secure ASIC processor for enhanced computing power [34]. Question: Weak guidance for billings - The company experienced strong performance in Q4 but anticipates a more cautious outlook for Q1 due to external factors like tariffs and government disruptions [42]. Question: Refresh opportunity implications for subscription revenue - Subscription revenue growth is tied to upselling additional services alongside hardware renewals, with plans in place to incentivize sales [48]. Question: Billings guidance assumptions - The guidance includes significant upsell components and expectations for gradual growth rather than spikes [56]. Question: Impact of tariffs on demand and supply chain - The company is monitoring the dynamic situation regarding tariffs, particularly in Latin America and Canada, and acknowledges potential impacts on demand [62][66]. Question: U.S. performance sustainability - Fortinet has enhanced its U.S. enterprise sales and sees significant growth potential in the region due to increased resources and channel partnerships [72]. Question: Linksys relationship and strategic positioning - The acquisition of Linksys positions Fortinet to enter the consumer home-based network security market, leveraging its technology and existing user base [79]. Question: Inventory levels in anticipation of demand - The company targets healthy inventory turns and anticipates a gradual upgrade path for product revenue [84][86].