Zscaler (ZS) Post-earnings Analysis
Shares of cybersecurity company Zscaler fell this week after they reported their quarterly earnings. The company fell short on profit outlook, forecasting earnings per share to come in between $2.81-$2.87 for the full fiscal year ahead versus the analyst expectation of $3.33. The forecasts eclipsed Zscaler’s stellar revenue for the latest quarter, which grew at 30%. Net losses also narrowed to 10 cents a share, compared to 21 cents a share same time last year.
Looking past the sharp earnings decline, Zscaler remains as strong player in the cybersecurity market. The company has grown its revenue at a consistent 30%+ for the past seven quarters (and counting), and has slowly narrowed losses, leading them closer to profitability in the coming months. Zscaler may not have met profit forecasts, but they are still expected to report a positive year ahead, which would be a major accomplishment for them.
Investors looking to capitalize on the cybersecurity space have faced a challenging year so far, mostly because cybersecurity stocks were already trading at a slightly inflated valuation. These companies fell victim to their stocks growing too big in valuation far too quick, which set the bar extremely high for their earnings. So despite posting great earnings, many of them have followed up with a lackluster stock performance.
Nonetheless, the cybersecurity industry grew to reach a market size of $190.4B in 2023 and is only expected to grow in the next decade. Forecasts are projecting it will reached nearly 300B in market value by 2028 and there are only a select number of publicly traded companies that are leading the way, Zscaler is one of those companies.
Now that shares have fell another 18%, Zscaler’s valuation has come down to $24 billion. This is beginning to look more like a fair valuation when accounting for their financial statements, but as they grow revenue and net income, it’s likely that they will begin to grow back in market value. In the short term, it may take time to rebuild buying confidence so we expect it to possibly see a further downside move, however we’ll be watching future earnings for signals of buying opportunities.