UPDATED 17:47 EDT / FEBRUARY 29 2024


Zscaler shares dip despite outperforming earnings expectations

Shares in Zscaler Inc. fell more than 8% in late trading today despite the cloud security company delivering beats in its latest quarter and issuing a better-than-expected earnings outlook.

For the quarter that ended on Jan. 31, Zscaler reported adjusted earnings per share of 76 cents, up from 37 cents in the same quarter of the previous year, on revenue of $525 million, up 35% year-over-year. Both figures were ahead of the 58 cents per share and $507.58 million in revenue forecast by analysts.

The company saw adjusted income from operations of $103.2 million or 20% of revenue, up from $48.8 million or 13% of revenue in the same quarter of fiscal 2023. Cash provided by operations came in at $142.1 million, up from $89.5 million and deferred revenue as of Jan. 31 sat at $1.502 billion, up 35% year-over-year. Zscaler also had $2.46 billion in cash, cash equivalents and short-term investments on hand as of the end of the quarter.

Recent business highlights include Zscaler announcing Zscaler Zero Trust SASE, a single-vendor secure access service edge solution, on Jan. 23. Zero Trust SASE combines Zscaler’s artificial intelligence-powered Security Service Edge platform and its Zero Trust SD-WAN solution to support a hybrid workforce spanning all locations and an organization’s remote users.

On the same day, Zscaler also announced the general availability of its Zero Trust SD-WAN solution. The solution secures inbound and outbound zero-trust connectivity in a single device, an approach that is said to require no overlay routing complexity, no additional firewalls and no separate policies for sites and users.

“We delivered strong Q2 results, with billings, revenue and operating profit all coming in above our guidance as customer interest in the Zscaler Zero Trust Exchange platform remains high,” Jay Chaudhry, chairman and chief executive officer of Zscaler, said in the company’s earnings release. “An increasing number of customers are realizing the shortcomings of traditional firewall-based security and are engaging with us to transform their legacy security to zero trust architecture.”

For its fiscal 2024 third quarter, Zscaler expects to see adjusted earnings per share of 64 to 65 cents on revenue of $534 million to $536 million. Both were ahead of analyst forecasts of 58 cents per share and $531 million. It was a similar story with the full-year outlook, with Zscaler forecasting $2.73 to $2.77 in adjusted earnings per share on revenue of $2.118 billion to $2.122 billion, ahead of an expected $2.49 and $2.1 billion.

There was nothing obvious in the figures that would easily explain Zscaler’s share drop. However, Zscaler’s stock had previously experienced a decline of 14% following a weaker-than-expected forecast by rival Palo Alto Networks Inc. on Feb. 20. Zscaler’s dip today could be a case of skittish investors, industry trends and broader market concerns.

Image: Zscaler

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