Why Zscaler Is Best Positioned To Benefit From Secular Trend Toward Cloud-Based Security Platform

Sell-side has touted Zscaler Inc ZS as one of the software companies that could weather the spending headwinds arising out of the COVID-19 pandemic. This thought was echoed by an analyst at Rosenblatt Securities.

The Zscaler Analyst

Yun Kim upgraded Zscaler from Hold to Buy and increased the price target from $58 to $75.

The Zscaler Thesis

The current secular trend toward cloud-based security platform will likely accelerate due to the current work-from-home trend and increasing adoption of virtual work environment going forward, Kim said, and Zscaler is the best-positioned security software to benefit from the trend.

With workloads increasingly migrating to cloud and more users accessing cloud applications and deployments outside of the corporate network, the market is looking for a "new security paradigm based on a multi-tenant cloud platform" that displaces the traditional approach, the analyst said.

"In our view, ZS is the single best pure-play vendor to play this secular trend that represents the highest priority for most organizations," Kim wrote in the note.

The company's VPN solution - Zscaler Private Access – is seeing accelerating adoption. However, the analyst expects the core Zscaler Internet Access business to see a slowdown in the near term, primarily due to the strategic nature of the ZIA sales process and somewhat lengthy sales and deployment cycle.

With preliminary industry checks indicating the sales momentum at ZPA business more than offsetting the slower ZIA business momentum, Rosenblatt said it's comfortable with its current April-ending estimate.

ZS Price Action

Zscaler shares traded around $62.22 at time of publication.