Zscaler Gets Street-High Price Target: 'Still Early Days In Cloud Security Vendor's Growth'

Cloud security vendor Zscaler Inc. ZS has been one of the key beneficiaries of the emerging tech trends necessitated by the COVID-19 pandemic.

The Zscaler Analyst: Needham analyst Alex Henderson reiterated a Strong Buy rating on Zscaler and lifted the price target from $215 to a Street-high $240.

The Zscaler Thesis: Zscaler is seeing accelerating demand, with the company rapidly scaling its network capacity and sharply investing in sales reach/capacity, Henderson said in a Tuesday note. The company is also seeing a strengthening pipeline and strong partner participation.

Zscaler is one of the biggest beneficiaries of SolarWinds Hack and COVID. Cloud Direct adoption and Zero Trust, which Zscaler pioneered, are now widely accepted and broadly seen as the future of Security, the analyst said, citing his discussion with enterprises and value-added sellers.

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

Cloud workload protection will become a major contributor to growth over time, Henderson said. Revenue per workload protected is estimated at $155 per workload compared to $145 per user on the rest of the platform.

Zscaler estimates there are over 150 million workloads directly addressable in the cloud and another 338 million hybrid opportunities longer term.

"Architecture matters and Zscaler's can scale with added products driving efficiencies across its capacity, security efficacy, Sales GTM, and product suite," Henderson wrote in the note.

As the traffic doubles every 20 months, it's creating a network effect, building Zscaler's competitive edge. Needham, therefore, sees upside to numbers and a longer-term sustainable high levels of growth with nicely expanding margins.

ZS Price Action: Zscaler shares were up 2.5% to $203.65 at publication time.