Zscaler, CrowdStrike Hit New Highs After Stellar Quarters: What The Sell-Side Says

Shares of cloud security software companies Zscaler Inc ZS and Crowdstrike Holdings Inc CRWD are at record highs following the release of quarterly results.

Both companies reported forecast-beating results and issued upbeat guidance for the calendar-year fourth quarter and the full year.

The Zscaler Analysts: Needham analyst Alex Henderson maintained a Strong Buy rating on Zscaler and increased the price target from $180 to $190.

Morgan Stanley analyst Keith Weiss maintained an Equal-weight rating and hiked the price target from $123 to $150.

Wedbush analyst Daniel Ives maintained an Outperform rating and increased the price target from $175 to $180.

Credit Suisse analyst Brad Zelnick maintained an Outperform rating and upped the price target from $160 to $175.

The Zscaler Theses: Zscaler's first-quarter revenue growth of 52% and calculated billings growth of 64% were notably ahead of expectations and revealed an accelerated trend, Needham's Henderson said.

Morgan Stanley analyst Keith Weiss said the billings growth of 64% came in well ahead of the consensus forecast of 39% and the free cash flow margin came in at a strong 30%.

The strength is attributable to improving sales productivity, a large number of cloud transformation deals and stronger momentum in net new logos, with a record number of seven-figure deals, the analyst said.

Wedbush analyst Ives sees Zscaler's results as underlining the underlying cloud deal momentum the company is seeing in the field.

Related Link: Credit Suisse Upgrades Zscaler On Prospects Of Durable Growth

Needham analyst Henderson said operating margins improved strongly, coming in at two times the Street forecast thanks to the revenue leverage.

Zscaler's guidance was strong, with management supporting it by suggesting strength across the board, especially in metrics such as transactions, upsell, net retention, remaining performance obligations and large deals, the analyst said. 

Ives said Zscaler "yet again raised guidance as deal flow and pipeline activity are further inflecting in our opinion."

Needham, though not ruling out a period of consolidation, said it thinks Zscaler is a unique investment vehicle with exceptional long-term value potential.

"We believe this is going to be a major company, and we recommend investors buy these shares, establish a core position, and add on any weakness." 

Weiss said the heavy investments in sales capacity, a revamped go-to market and secular tailwinds around Cloud Security and Zero Trust Architectures should drive continued outperformance in billings heading into the next calendar year.

"We think continued outperformance appears priced in the stock at current levels and would look for a pullback to get more aggressive," the analyst said. 

Wedbush said Zscaler appears to be in the driver's seat on the cloud cybersecurity shift over the next decade, and the semi global lockdown environment will only accelerate its ability to capture the business. 

The increasing need to secure applications, data and consumers outside the firewal underlines the total addressable market for Zscaler going forward and the massive market opportunity it has into the next few years, Ives said. 

The CrowdStrike Analyst: Needham analyst Henderson maintained a Buy rating on CrowdStrike shares and increased the price target from $190 to $200.

The CrowdStrike Thesis: Despite being the fastest-growing of the highest-growth cloud names, CrowdStrike didn't slow, Henderson said.

The company reported 87% subscription growth and 86% revenue growth while also showing sharp leverage in margins, the analyst said. 

This margin leverage demonstrated the rapidity which the company can drive margins higher and get to 20%+ levels, he said.

Very few companies deliver this type of growth and can drive margin higher at the same time, Henderson said. 

"We are long-term buyers of CRWD for multi-year outperformance."

CRWD, ZS Price Action: At last check, Zscaler shares were jumping 25.26% to $183.86 and CrowdStrike shares were rallying 13.51% to $161.

Related Link: Cybersecurity Analyst Expects Strong Zscaler, CrowdStrike Earnings