Zscaler drops 9% even as Wedbush defends after Q1 beat, guidance raise
Michael Vi

Zscaler (NASDAQ:ZS) shares dropped more than 9% in premarket trading on Friday despite the cybersecurity company reporting strong first-quarter results and raising its guidance for the rest of fiscal 2023, prompting Wedbush Securities to come to its defense.
Analyst Dan Ives, who has an outperform rating on Zscaler (ZS) but lowered the price target to $180 from $200, noted that the results were "solid" and the company is showing momentum into the next fiscal year, despite worries about the global economy. 
"The company has done particularly well with capitalizing on emerging market opportunities including within the federal segment, which had a very strong quarter after receiving FedRAMP certification for its Private Access and Zero Trust Exchange platform," Ives wrote in a note to clients. 
"We continue to believe Zscaler is a top name in this space to own as this cloud cyber security shift accelerates over the next decade as this was an impressive quarter in a dark economic backdrop," Ives added.
For the first quarter, Zscaler (ZS) reported adjusted earnings of $0.29 per share on $355.5M in revenue, topping estimates of $0.26 per share and $340.79M in revenue. Calculated billings grew 37% year-over-year to $340.1M and deferred revenue grew 55% year-over-year to $1.006B.
Looking ahead, Zscaler (ZS) now expects total revenue for fiscal 2023 to be between $1.525B and $1.53B, up from a previous forecast of $1.49B to $1.5B. Analysts expect $1.5B in revenue.
It also raised its expectations for adjusted earnings per share, as it now expects to earn between $1.23 and $1.25 per share, up from a prior forecast of $1.16 to $1.18 per share.
In addition to the aforementioned positives, Ives noted that Zscaler (ZS) is capitalizing on the opportunity in front of it with customers adopting and innovating to build its pipeline, which is "ultimately mitigating macro pressures and elongating sales cycles."
Ives noted that there was some "step down" in billings for the January quarter, but said that was not surprising, as the rest of the tech industry has been "battered by significant macroeconomic pressures" and Zscaler (ZS) has "remained resilient in its market and product strategy, growing with continued success for its zero-trust SaaS applications and cloud workload protection."
Late last month, Wedbush said Zscaler (ZS) and several other cybersecurity companies were likely to keep benefiting as checks into larger deals showed "clear stability" heading into the end of the year and 2023.