Zscaler Q1 Preview: Growth Drivers, Macro Challenges, And Data Protection Focus

Zscaler Inc ZS will be reporting its first-quarter earnings on Nov. 27. Markets are expecting Zscaler to report 49 cents in EPS and $474.31 million in revenue, as it reports its Q1 2023 results after market hours

The cloud security company secures and manages access to web applications and services, offering protection for users regardless of their location or device. Zscaler has so far successfully demonstrated continued growth and improved profitability. The company has also deployed AI-based security controls to stop the latest attacks, further enhance data protection, and secure the use of generative AI. As it announces its Q1 FY2024 results, analysts on Wall Street anticipate the company will maintain this focus on advanced AI-based security enhancements.

Also Read: Several Cybersecurity Stocks Tumble After-Hours Alongside Palo Alto Networks: Details

Business & Fundamentals: The company has projected 33% YoY revenue growth in Q1 FY2024 and 27-28% growth for the full financial year. Gross profit margins remain stable, but higher public cloud usage for emerging products is affecting them. Zscaler is cash flow positive and generates efficient growth and a high gross retention rate. The company sports a 121% 12-month trailing net retention rate.

However, the macro environment remains challenging. Zscaler is attempting to minimize the impact of macro headwinds by engaging with customers earlier and building a clear case around ROI.

The company’s peers are also facing the impact of the macro environment. Fortinet Inc FTNT struggles due to increased deal scrutiny and sales cycles, shifting focus to SASE, where demand remains more robust. Cloudflare Inc NET has attributed recent soft growth to sales issues related to its SASE business, but is working through these problems and is more constructive about its forward prospects. Palo Alto Networks PANW has also reported difficulties due to the rising cost of capital, but is adapting with incentives like financing and incident response support for strategic customers.

Q1 Analysts' Focus: Cybersecurity is evolving towards platforms that are likely to absorb adjacent categories, with customers preferring platforms with tightly integrated products. So, analysts will be on the lookout for Zscaler’s initiatives and plans towards providing more integrated products to its customers.

Additionally, data protection is emerging as a growth driver for Zscaler, so any numbers reported around that would be in focus. Zscaler has been expanding data protection from users to workloads and devices.

Ratings & Consensus Estimates: Consensus analyst ratings on ZS stock stand at a Buy, with a price target of $188.47 per share. Analyst ratings over the past month reflect a positive outlook on the stock with Needham rating it a Strong Buy with a price target of $210 and BTIG rating it a Buy with a price target of $229. Morgan Stanley raised their price target from $155 to $170 recently.

Price Action: Shares of Zscaler closed 1.29% higher on Friday at $193.09.

Read Next: Zscaler Positioned As A Top Beneficiary In Rapidly Evolving Security Landscape, Says Piper Sandler Analyst

Photo: Shutterstock