Zscaler gains on earnings even after early signal for strong quarter
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Zscaler stock (NASDAQ:ZS) rose 5.4% Friday after a strong fiscal third-quarter earnings report, even as the company had signaled a strong quarter with upbeat preliminary numbers early last month.
Revenues grew 46% to $418.8M, topping consensus views, and deferred revenues jumped 44% year-over-year to $1.175B. Adjusted earnings per share of $0.49 beat forecasts for $0.47.
Those numbers were largely in line with what Zscaler had signaled on May 8, a day that drove the stock up nearly 21%. Since the close before that preliminary announcement, Zscaler is up 59%.
"Clearly the channel got this one wrong," Evercore analyst Peter Levine said, noting the positive pre-announcement shouldn't have left too much to surprise.
"It's an odd feeling to see a clean beat and raise in this environment," he said, noting commentary from peers Crowdstrike and Okta. "Street checks along with our [third-quarter] checks were neutral/bearish on ZS all quarter and commentary from RSA continued to point toward a more cautious outlook. We clearly all got this one wrong."
The results give some confidence that cybersecurity is a bit more resistant than feared, he said, raising the price target to $170, implying another 19% upside from here.
Stifel raised its price target as well, to $150. Analyst Adam Borg said the report "filled in the remaining pieces from its healthy pre-announcement."
"Looking ahead, we continue to believe Zscaler has a number of drivers to sustain 25%-30%-plus growth and margin expansion in coming years," he said.
J.P. Morgan is Neutral but noted the company followed up a "disappointing" billings result last quarter with better execution on billings, revenue and margins. The company raised guidance, analyst Brian Essex noted, but said that forecast implies decelerating growth to close out the fiscal year.
"We continue to view Zscaler as a beneficiary of enterprise spending, high priority CIO spending initiatives, and vendor consolidation, as the company continues to balance prudent growth and profitability into FY24," he said, but the firm is staying Neutral as valuation is still a headwind.
For more, dig into Seeking Alpha's transcript of Zscaler's earnings call.