Zscaler (ZS) Jumps After Topping Profit, Sale, and Outlook Estimates to Prompt an Upgrade to 'Outperform' at BMO
Shares of Zscaler (NASDAQ: ZS) have surged 11% today in pre-open trading after the cloud-based information-security company easily surpassed analysts’ estimates for its April quarter.
ZS made a profit of $0.15 per share on revenue of $176.4 million while analysts were expecting $0.07 per share on sales of $163.7 million. Revenue jumped by 60% compared to a year-ago period while billings jumped 71%.
"We delivered outstanding results for the third quarter, with revenue growth accelerating to 60% year over year and free cash flow reaching a new record. Our Zero Trust Exchange platform is helping customers realize their digital transformation goals and architect for the new normal of the work-from-anywhere economy," said Jay Chaudhry, Chairman and CEO of Zscaler.
"Our strategic position with customers continues to strengthen, and we are executing well on our go-to-market initiatives. With strong business momentum, we are pleased to again increase our fiscal year guidance."
For the current quarter, Zscaler expects sales of $186 million (the midpoint) to again top the $174.4 million expected from market analysts. On a full-year basis, the company is expecting total revenue of $660 million to $664 million.
A great quarter prompted BMO analyst Keith Bachman to upgrade to “Outperform” on prospects of durable growth. He also bumped the price target to $225.00 per share from $202.00 per share.
“We have stated on more than one occasion that ZS is one of the best, if not the best positioned company in our coverage universe. We continue to think that ZS is well positioned, and we are moving our rating to Outperform and our target price to $225. ZS joins our newly formalized preferred barbell group that includes HUBS and DT in the growth category. We project 37% y/y revenue growth in FY22, which we think could very comfortably exceed 40% y/y, even off of tough compares,” Bachman said in a note.
The analyst believes that the company’s billings and revenue growth durability is supported by a large TAM.
“We believe that ZS has significant market opportunity that continues to grow with the release of the company’s new ZCP products. While we believe that ZS can still take substantial share in the network and secure access service edge (SASE) security markets, we think the launch of ZS’s cloud security products has significantly expanded the company’s TAM. We calculate a FY22 TAM of $68 billion compared to the company’s provided TAM of $72 billion, with ~30% coming from ZS’s cloud security opportunity,” he adds.
Mizuho’s Gregg Moskowitz raised the price target to $215.00 per share from $205.00 per share on the Buy-rated stock after an “impressive F3Q upside.”
“ZS managed to avoid any billings deceleration despite facing a 55% comp that was 37 points more difficult. We reiterate that ZS's unique cloud proxy security architecture should enable it to thrive in an increasingly digital-enabled world. We also expect significant improvements in monetization, particularly as newer offerings (namely, ZDX and ZCP) gain traction. Despite a premium valuation, ZS is very well-positioned within cloud security, and we see healthy upside as the co. grows into its opportunity,” Moskowitz said in a memo sent to clients.