Zscaler (ZS, Financial), a cybersecurity firm specializing in Zero Trust and Private Access cloud products, surpassed Q4 estimates and hit a milestone with quarterly bookings reaching $1.0 billion. Despite these strong results, the stock is dropping due to unimpressive FY25 EPS and billings guidance, which have reignited growth and competitive concerns.
- CEO Jay Chaudry highlighted strong customer adoption of ZS's Zero Trust platform, setting new records for both new and upsell business in Q4. The rise of GenAI technology is also creating more cybersecurity risks, driving demand for ZS's new GenAI security product.
- ZS continued its streak of beating analysts' quarterly EPS and revenue estimates for over five years. Q4 billings surpassed expectations, growing by 27% year-over-year to $910.8 million. The 12-month trailing dollar-based net retention rate was an impressive 115%.
- Despite significant changes in its go-to-market strategy, including new executive appointments, ZS achieved solid results. The shift from opportunity-based to account-centric selling, led by Chief Revenue Officer Mike Rich and Chief Marketing Officer Joyce Kim, aims to drive higher cross-selling revenue.
- However, FY25 billings guidance of $3.110-$3.135 billion, indicating 19-20% growth, suggests tougher times ahead. Specifically, ZS expects just 13% billings growth in the first half of FY25, with an acceleration to 23% in the second half.
- ZS anticipates improved sales productivity and a growing pipeline to boost second-half growth. Contracted billings from prior years are expected to increase by 7% in the first half and by 23% in the second half of FY25. Despite these projections, investor concerns about growth remain.
The main takeaway is that ZS performed well in Q4, showcasing the resilience of its business model. However, the anticipated slowdown in billings growth for 1Q25 is causing investor anxiety. Given the stock's high valuation, with a P/S ratio above 13x on a trailing 12-month basis, any deceleration in growth is likely to impact shares significantly.
