Zscaler (ZS) plunges despite beat-and-raise results; analysts see weakness in billings

Shares of Zscaler (NASDAQ: ZS) are down over 12% in pre-market Friday despite the cybersecurity company reporting stronger-than-expected results for its fiscal second quarter.

Zscaler posted FQ2 EPS of $0.37 on revenue of $387.6 million, beating the consensus for earnings of $0.29 per share on revenue of $365.53M. While revenue increased 52% year-over-year, deferred revenue jumped 46% to $1.11 billion, missing the $1.13B estimate.

Billings rose 34% to $493.8M above the average analyst estimate of $491.2M.

"We exceeded both our revenue and profitability guidance in Q2, demonstrating the operating leverage inherent in our business model,” said Jay Chaudhry, Chairman and CEO of Zscaler.

“Even in this difficult macroeconomic environment, we continue to see customers consolidate multiple point products onto our integrated Zero Trust security platform for better security and lower cost.”

For this quarter, the company guided to EPS of $0.39 on sales of $397M (up or down $1M), beating the consensus for earnings of $0.31 per share on revenue of $387.3M.

Given the better-than-expected FQ3 forecast, Zscaler raised its full-year forecast. EPS is now seen in the range of $1.52-1.53 on revenue of $1.558-1.563 billion, again above the consensus for a profit per share of $1.24 on revenue of $1.53B.

Billings are expected between $1.94B and $1.95B, up from the prior forecast of $1.93-1.94B.

Analysts blamed the selloff in ZS stock on a lower-than-expected quarterly billings beat.

“While we are encouraged by the improvement in profitability, we come away from the quarter questioning whether the slowdown in growth is being caused more by the macro or more by competition, especially considering this quarter's print from PANW,” Wolfe Resarch analyst Joshua Tilton said.

Morgan Stanley analyst Hamza Fodderwala believes the results may prompt investors to believe that Zscaler is seeing other headwinds than just those stemming from a difficult macro environment.

“Pace of topline deceleration is steeper and less certain, while competitive dynamics aren't getting easier,” the analyst added.

By Senad Karaahmetovic

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