A solid earnings beat, strong guidance for the next quarter and full year, and news of a strategic acquisition was enough to send cybersecurity firm Zscaler Inc.’s stock soaring today, with gains of more than 8% in late trading.

The company announced it’s planning to buy Indian “active defense” technology startup Smokescreen Technologies Ltd. shortly after posting third-quarter financial results that easily beat Wall Street’s expectations.

Zscaler reported a profit before certain costs such as stock compensation of 15 cents per share on revenue of $176.4 million, up 60% from the same period one year ago. That was far better than analysts were expecting, with Wall Street’s models guiding for a profit of just 7 cents per share on revenue of $163.7 million.

The company sells security tools that have become more popular with enterprises that need to support people working from home during the COVID-19 pandemic. Zscaler’s cloud-based web security gateways work by inspecting people’s internet traffic for malware, as an alternative to firewall-protected virtual private networks. It provides its services via 150 data centers located around the world.

Zscaler Chairman and Chief Executive Jay Chaudhry (pictured) said the company’s free cash flow also hit a record high in the quarter as more customers adopted its platform to secure their remote workers. “Our strategic position with customers continues to strengthen, and we are executing well on our go-to-market initiatives,” he added.

The acquisition of Smokescreen Technologies looks to be a promising one as it sells technology that will complement the Zscaler platform. Its active-defense platform uses proactive measures to thwart ransomware, social engineering and other types of targeted attacks the moment they begin, the company explained.

“It allows businesses to rebalance the defensive equation in their favor; identifying intrusions before attackers compromise vital company data and resources,” the company said. “Smokescreen is fully aligned with MITRE Shield, a framework for organizations to apply active defense effectively in their security operations workflows.”

Zscaler said Smokescreen’s technology will be integrated within its main Zero Trust Exchange platform, boosting its ability to detect sophisticated, targeted attacks and lateral movement attempts. It will also add to the threat intelligence and telemetry data Zscaler receives, helping it to keep track of new cyberattack tactics and techniques, officials said.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that it’s no surprise to see zero trust security vendors like Zscaler succeeding in the work from home era. Still, he noted that the company could be ever more successful if it can manage to balance the books better.

“Zscaler did very well as its revenue growth of more than 50% indicates, but it did less well in terms of cost management,” Mueller said. “It’s loss grew faster than revenue growth, and while that can be justified in the current market share race for cybersecurity firms, it’s not viable in the long run.”

Still, Mueller did admit that Zscaler is spending its money wisely, with the acquisition of Smokescreen adding more value for its end users. “This will increase the defensive capabilities of the Zscaler platform once its technology is fully integrated,” he said.

While Smokescreen’s technology will help Zscaler in the longer term, the company is expecting good things to happen in the next few months too. For the fourth quarter, Zscaler is eyeing revenue of $185 million to $187 million, well ahead of Wall Street’s forecast of $174 million in sales. For the full year, Zscaler said it now sees revenue of $660 million to $664 million, versus the analyst consensus of $638 million.

Photo: SiliconANGLE