Zscaler (ZS) PT Lowered to $245 at Evercore ISI, 'Tough To Bet Against These Guys'

Evercore ISI analyst Peter Levine lowered the price target on Zscaler (NASDAQ: ZS) to $245.00 (from $270.00) while maintaining a Outperform rating.

The analyst comments "ZS delivered a strong ‘beat and raise’ F3Q, headlined by billings growth of 30% (ahead of the 24%/25% bogey), revenue growth of 32% y/y, scale in large customers (50+ customers at $5mn+ ARR), and 22% operating margins – despite ongoing customer scrutiny of large deals, changes in the sales organization, and higher than expected sales attrition in the quarter. The quarter was well executed with most metrics outperforming, and our thesis remains firmly intact. We were impressed to hear the continued success within the public sector, particularly with the recent 7-figure contract awarded by the Department of Defense. Mgmt highlighted broad-based strength as an increasing number of enterprises were looking to adopt the platform, and brought up examples across different industries, both with new customers and upsells, and is evolving the sales motion from “opportunity-centric” to “account-centric”. Further, mgmt is seeing strong customer interest in emerging products, which contributed nearly 25% of new and upsell business in F3Q. In terms of the guide, the FY revenue guide was raised by $21mn to +32.4%, operating margin guide was raised by 100bps to 19.8%, and FCF margin guide was “low-to-mid-20%s”. Management did not provide FY25 guidance but mentioned that they are focused on increasing the pace of hiring quota-carrying reps, which may result in a few points of headwind to FY25 billings growth. Dissecting the fundamentals, the business continues to trend in the right direction with CRPO bookings up 33% y/y. ZS now has 523 $1mn+ ARR customers (+26, +30.8% y/y) and 2,922 $100k+ ARR customers (+102, +20.1% y/y). While gross retention remained in the mid-high 90% range, NRR fell to 116% vs. 117% in the prior quarter, and management stated that their increased success in selling multiple pillars from the start and faster upsells within the year could reduce NRR in the future and add greater variability to the metric. Adj our PT from $270 to $245 (13x CY25 sales)."

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