Zscaler Inc. Pre-earnings Analysis
Chart done daily timeframe. The cybersecurity industry is expected to grow by 64% in the next five years as technological advances continue and our world becomes even more integrated with the internet. From protection against cyber warfare between countries to protection on our own personal devices, the industry has become essential to our safety and companies like Zscaler, Palo Alto Networks, and CrowdStrike are reaping the benefits. Large scale government contracts and revenue from private deals with massive technology companies are awarding cybersecurity firms billions of dollars and demand is growing as rapid as technological innovation. Zscaler in specific has more than tripled its revenue in the last four years since Covid supercharged our online presence, and although their bottomline is still negative, it has shown promise of moving in the right direction over the last four quarters. Young companies with rapidly growing revenue are often “forgiven” for operating at a negative net income in the early stages of growth as capital flows back into the business for development. Although net is yet to be positive, Zscaler has grown its free cash flow reserves by 18x in the last four years to 500M.
All in all, Zscaler and other cybersecurity names are worth keeping an eye on over the next few quarters and years as the industry grows and they’re awarded more contracts. Earnings from ZS this week will be watched closely, specifically for revenue growth and profitability.
Option chain analysis:
ZS’s option chain expiring on June 21 2024 currently reflects an implied volatility reading of 65%, which translates to about a $25 move from the underlying stock between now and then. The direction of that move will depend on their earnings outcome and call.