6 Zscaler Analysts On Disappointing Results, Guidance - But There Are 'Positives'

Shares of Zscaler Inc ZS crashed in the premarket session on Friday, despite the San Jose, California-based company reporting an earnings beat for its fourth quarter.

• Needham analyst Alex Henderson maintained a Strong Buy rating and price target of $210.
• Wedbush analyst Daniel Ives maintained an Outperform rating, while reducing the price target from $180 to $150.
• JMP Securities analyst Trevor Walsh reiterated a Market Outperform rating and price target of $225.
• Cantor Fitzgerald analyst Jonathan Ruykhaver maintained a Neutral rating, while reducing the price target from $160 to $140.
• BMO Capital Markets analyst Keith Bachman reiterated an Outperform rating, while reducing the price target from $145 to $133.
• BofA Securities analyst Tal Liani reaffirmed a Buy rating and price target of $145.

Check out other analyst stock ratings.

Needham

• Zscaler reported its quarterly results ahead of Street expectations, Henderson said. “The stock declined on the print around a deceleration of the Calc Billings to the high-end of guidance, up 34%, in line with Street estimates,” he added.
• Henderson says Zscaler's results are "healthy enough to drive growth and margins" ahead of Needham's forecasts over the next year.

Wedbush

• The company’s results were solid, with “a slight billings beat,” Ives wrote in a note. “Management noted higher scrutiny on overall budgets and elongated sales cycles which speaks to a billings number that was not the typical massive Street beat investors have begun to expect from the ZS story,” the analyst wrote.
• “The federal vertical appears robust and is driving some larger deal activity that we believe could be in the eight figure range while other traditional verticals such as financials appear to be seeing a tougher deal backdrop,” he further added.

JMP Securities

• “Although the F2Q23 results produced a standard beat-and-raise quarter, investor expectations seem to be elevated for this high-growth name notwithstanding the more uncertain economic environment,” Walsh stated.
• “Zscaler traded down ~11% in the aftermarket on further conservative top-line guidance that implies low 30% revenue growth for 2HFY23, coupled with a significant expansion on operating margin guidance due to macroeconomic uncertainty, as well as a 3% RIF,” he added.

Cantor Fitzgerald

• “While we acknowledge that billings of $494M were above the Street's $491M estimate, an increase of 34% y/ y, we believe buyside expectation was likely higher, in the range of $500-510M,” Ruykhaver said in a note. “Macro challenges continue to adversely affect Zscaler, as customers' spending behavior has been more measured since January."
• “However, the positive is that management doesn't believe any of the deals have been lost due to competitive pressure, and the pipeline was stated to be at record levels,” Ruykhaver added.

BMO Capital Markets

• “While we had highlighted our concerns that ZS might not have enough demand upside to push the shares higher, we nevertheless thought ZS’ quarter was generally disappointing, even with improved margins,” Bachman said.
• “On the positive side, we think FCF can offer some support for shares, and ZS maintains tech leadership,” the analyst stated. “On the negative side, we envision limited upside to the 2HFY23 billings guidance,” he added.

BofA Securities

• “Strong 2Q23 results but the billing trends were weak,” Liani said.
• “We also believe management’s 4Q billing growth targets are likely too high and assume certain normality in the market that we currently don’t observe,” he added.

ZS Price Action: Shares of Zscaler had plummeted by 10.95% to $119.44 in premarket trading on Friday.