News

Zscaler ZS reported better-than-expected third-quarter fiscal 2024 results. The company posted third-quarter fiscal 2024 non-GAAP earnings of 88 cents per share, which beat the Zacks Consensus Estimate of 65 cents. It reported non-GAAP earnings of 48 cents in the year-ago quarter.

Zscaler’s third-quarter fiscal 2024 revenues were $553.2 million, which surpassed the Zacks Consensus Estimate of $535.6 million and increased 32% year over year. This improvement in revenues was on the back of increased success in selling bigger bundles and multiple product pillars from the beginning of the quarter, as well as achieving faster upsells within a year.

Top-Line Details

During the third quarter, Zscaler’s calculated billings increased 30% year over year to $628 million.

Region-wise, the Americas accounted for 54% of revenues, while the EMEA contributed 31%. The Asia Pacific and Japan made up the remaining 15%.

Zscaler, Inc. Price, Consensus and EPS Surprise

Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote

In the fiscal third quarter, ZS added multiple large customers across all its offerings, including ZIA, ZPA and ZDX. Its net 12-month trailing dollar-based retention rate was 116%, driven by strong upsells.

Remaining Performance Obligations (RPO), representing Zscaler’s committed non-cancelable future revenues, were $3.82 billion as of Apr 30, which increased 27% year over year. The current RPO is approximately 51% of the total RPO.

At the end of the quarter, the company had 523 customers with $1 million or higher annualized recurring revenues (ARR). The company added 26 customers during the quarter with $1 million or more in ARR. The company’s customer count for ARR of more than $100,000 reached 2,922 at the end of the third quarter.

Operating Details

The non-GAAP gross profit increased 34.2% year over year to $450 million. The non-GAAP gross margin expanded 100 basis points (bps) on a year-over-year basis to 81%.

Total non-GAAP operating expenses, accounting for 59.4% of revenues, increased 20.8% year over year to $328.5 million. Sales & marketing, research & development, and general & administrative expenses jumped 11%, 35% and 16%, respectively, on a year-over-year basis.

The non-GAAP operating income was $121.8 million compared with the year-ago quarter’s $63.9 million. The non-GAAP operating margin expanded 700 bps year over year to 22%.

Balance Sheet & Cash Flow

As of Apr 30, 2024, Zscaler had $2.24 billion in cash, cash equivalents and short-term investments compared with $2.46 billion as of Jan 31, 2024.

The company generated operating and free cash flows of $173.4 million and $123 million, respectively, during the third quarter. ZS generated operating and free cash flows of $108.5 million and $74 million, respectively, in the year-ago quarter.

Guidance

Zscaler revised its outlook for fiscal 2024. The company forecasts revenues in the range of $2.14-$2.142 billion, up from the previous guidance of $2.118-$2.122 billion. The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $2.12 billion, suggesting growth of 31.2% from fiscal 2023.

Calculated billings are now expected in the range of $2.603-$2.606 billion, up from the earlier guidance of $2.55-$2.57 billion.

The non-GAAP operating income is now estimated in the band of $422-$424 million compared with the previous guidance of $395-$400 million.

Non-GAAP earnings per share for fiscal 2024 are expected in the band of $2.99-$3.01 compared with the previous guidance of $2.73-$2.77. The consensus mark for fiscal 2024 earnings is pegged at $2.73 per share, which has remained unchanged over the past 60 days.

For the fourth quarter of fiscal 2024, Zscaler projects revenues between $565 million and $567 million. The Zacks Consensus Estimate for fourth-quarter fiscal 2024 revenues is pegged at $563.3 million, suggesting growth of 23.8% year over year.

The gross margin is expected to be 80%. The non-GAAP income from operations is estimated in the band of $107-$109 million. Non-GAAP earnings per share are projected between 69 cents and 70 cents. The Zacks Consensus Estimate is pegged at 67 cents, which has remained unchanged over the past 60 days.

Zacks Rank and Stocks to Consider

Currently, Zscaler carries a Zacks Rank #3 (Hold). Shares of ZS have plunged 29.3% in the year-to-date period.

Some better-ranked stocks from the broader technology sector are AppFolio APPF, Arista Networks ANET and Alphabet GOOGL, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for AppFolio’s 2024 EPS has been revised upward by 3 cents to $4 in the past 30 days. Shares of APPF have jumped 32.6% in the year-to-date period.

The Zacks Consensus Estimate for ANET’s 2024 EPS has been revised upward by 43 cents to $7.92 in the past 30 days. Shares of ANET have climbed 29% in the year-to-date period.

The Zacks Consensus Estimate for Alphabet’s 2024 EPS has been revised upward by 9 cents to $7.61 in the past 30 days. Shares of GOOGL have gained 23.2% in the year-to-date period.

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