Zscaler Delivers Upbeat Q4 Guidance: 7 Analysts Cut Forecasts On 'Incremental Risk'

Shares of Zscaler Inc ZS tanked in early trading on Wednesday, even after the company reported upbeat fiscal fourth-quarter results.

The company reported its results amid an exciting earnings season. Here are some key analyst takeaways.

• Goldman Sachs analyst Gabriela Borges maintained a Neutral rating, while slashing the price target from $189 to $177.
• Cantor Fitzgerald analyst Yi Fu Lee reiterated a Neutral rating, while reducing the price target from $200 to $170.
• Needham analyst Alex Henderson reaffirmed Strong Buy rating, while cutting the price target from $290 to $235.
• Piper Sandler analyst Rob Owens maintained an Overweight rating, while reducing the price target from $255 to $215.
• Oppenheimer analyst Ittai Kidron reiterated an Outperform Buy rating, while cutting the price target from $260 to $230.
• Scotiabank analyst Patrick Colville reaffirmed a Sector Outperform rating, while reducing the price target from $210 to $195.
• BMO Capital Markets analyst Keith Bachman maintained an Outperform rating, while trimming the price target from $208 to $197.
• KeyBanc Capital Markets analyst Eric Heath reiterated an Overweight rating and price target of $164.
• RBC Capital Markets analyst Matthew Hedberg reaffirmed an Outperform rating and price target of $230.
• JMP Securities analyst Trevor Walsh maintained a Market Outperform rating and price of $270.
• Stifel analyst Adam Borg reiterated a Buy rating and price target of $220.
• Truist Securities analyst Joel Fishbein reaffirmed a Buy rating and price target of $260.

Check out other analyst stock ratings.

Goldman Sachs: Zscaler reported its quarterly billings and revenues 2% and 4% higher than Street expectations. It guided fiscal 2025 billings growth of 19%-20%, 1% above the consensus. Revenue growth of 21% is in-line with estimates, Borges said in a note. However, earnings guidance remains 15% below the Street, possibly due to an increase in non-GAAP income taxes to $140 million.

Zscaler expects billings to be weighted toward the second half of fiscal 2025, the analyst stated. "We also believe the company is seeing an ongoing structural shift to enterprise business, which drives more back-end loaded fiscal years, and is also being impacted by a ramping sales productivity cycle," she further wrote.

Cantor Fitzgerald: Zscaler delivered "a strong finish" to fiscal 2024, Lee said. While the billings guidance for fiscal 2025, reflecting 19% growth at the midpoint to $3.123 billion, met the consensus, it came in "short of what we believe the investor/buyside expectation to be," he added.

"Zscaler expects F1H25 y/y billings growth to target 13% after exiting the quarter at 26.6% and 28.9% for FY24," the analyst wrote. This means billings growth would need to accelerate to 23% year-on-year in the second half of fiscal 2025, he further stated.

Needham: The company delivered revenues of $592.9 million representing 30% growth and 4.5% higher than consensus, Henderson said. Billings of $910.8 million also came in higher than expected, he added.

Management's billings guidance for fiscal 2025 assumes a "reacceleration into the low-20% in 2H driven by record pipeline, strong upsell/cross-sell, and pre-existing contracts flowing through Billings," the analyst stated. The company has accelerated hiring as productivity is expected to improve through fiscal 2025 to support the acceleration in the back half, he added.

Piper Sandler: Zscaler delivered an upside "across all metrics" in the fiscal fourth quarter, Owens said. While billings and revenue exceeded expectations, operating margins of 21.5% was "~230bps ahead of our expectations on gross margin outperformance and the revenue beat," he added.

"Though the billings guide came inline, seasonality comments that call for a stark acceleration in 2H will likely be a debate on the stock for some time to come," the analyst wrote. He expressed confidence in management’s ability "to execute on the year ahead."

Oppenheimer: The company reported gross margins of 81.1% and operating margins of 21.5%, with both beating estimates of 80.2% and 19.3%, respectively, Kidron said. The company's ARR (annual recurring revenue) surpassed $2.5 billion, and management expects it to cross $3 billion in fiscal 2025, he added.

Zscaler delivered a "record quarter of new and upsell business.” Emerging products contributed 22% of new business in fiscal 2024, the analyst stated. The billings guidance implies deceleration in the first quarter. Emerging product adoption could act as a headwind to gross margins "as the company offers attractive pricing to drive adoption."

Scotiabank: Unusual seasonality within Zscaler’s fiscal 2025 billings guidance is leaving investors “scratching their heads," Colville wrote. Management's outlook calls for a back-half weighted billings performance, "which undoubtedly adds incremental risk to the Zscaler story," he added.

Although billings grew by 27% year-on-year in the fiscal fourth quarter, "the outperformance vs. Street estimates was perhaps slightly smaller than we might have hoped," the analyst stated. "F25 operating margin guidance implies a Y/Y improvement of just 10 bps," he further said.

BMO Capital Markets: "While ZS' July quarter report was reasonable, the back-end nature of ZS' FY25 billings guidance is disappointing," Bachman wrote.

Management said this would be "due to growing seasonality as the business increases in size, and due to non-cancelable billings growth of 7% y/y in 1HFY25 and 23% y/y in 2HFY25, based on prior years' contracts (payments are one year in advance)," the analyst stated. "In contrast, we are encouraged by ZS' expanding deal sizes and increasing contributions from emerging products, which we think can increase over time," he added.

KeyBanc Capital Markets: Zscaler delivered a "modest" beat on billings and its fiscal 2025 billings guidance was "a touch shy of consensus," Heath said. While management noted broad-based strength and better-than-expected go-to-market execution in the quarter, the billings beat of 2% was significantly lower than the average of around 6% over the prior four quarters, he added.

"FY25 guidance assumes a greater than expected 2H ramp as 1H is adversely impacted by GTM changes and the softer RPO bookings from F1H23 & F1H24 as a headwind to 1H billings," the analyst further wrote.

RBC Capital Markets: "Zscaler delivered a good quarter vs expectations with a beat across the board," Hedberg said. The highlights of the quarter were revenue growth of 30% and billings growth of 27%, he added.

The fiscal 2025 guidance was "mixed" and reflected 20% revenue growth and 19% billings growth, respectively, at the midpoint, the analyst wrote. The company continues to face a challenging macro environment, he further stated.

JMP Securities: Zscaler reported upbeat quarterly results "across all major metrics," with non-GAAP earnings of 88 cents per share coming in higher than consensus of 70 cents per share, Walsh said.

"Initial FY2025 guidance was in line with consensus on the top line, but below expectations on earnings due primarily to new assumptions for non-GAAP tax rate," the analyst wrote. The company guided to non-GAAP earnings of 62 to 63 cents per share for the fiscal first quarter, below consensus of 73 cents per share, he further stated.

Stifel: "Consistent with our solid checks/preview, Zscaler delivered a strong close to FY24, with all key metrics above guidance and/or Stifel/street expectations given solid GTM execution and ongoing demand for Zscaler’s broadening zero-trust portfolio," Borg wrote in a note.

The fiscal 2025 guidance for billings, revenues, operating margins and free cash flow margins "bracketed consensus, although billings is going to be more back-end loaded than expected and there is noise with EPS guidance," the analyst stated. "Net/net, we are surprised by the negative reaction response to the print as we are encouraged by strong execution (record bookings quarter) and ultimately expect guidance to prove conservative," he added.

Truist Securities: The quarterly results show "the company’s ability to deliver significant operating leverage while maintaining growth," Fishbein said.

"The company is seeing strength across all of its segments and geographies, including in its emerging products pillars like ZDX, Zscaler for Workloads, Data Protection and Risk360," he wrote. Emerging products contributed 22% of new and upsell business in fiscal 2024. The company "continues to gain traction with their large customer cohort," the analyst further stated.

ZS Price Action: Shares of Zscaler had declined by 16.10% to $162.09 at the time of publication on Wednesday.

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