Zscaler Triumphs Vs Peers As Its Likely To Maintain 30%+ Growth Through Recession, Analyst Says

  • Needham analyst Alex Henderson had a Strong Buy on Zscaler, Inc ZS with a $210 price target.
  • The crucible of macro pressures drove companies to embrace the architectural change to Cloud Direct and Zero Trust and finally cut the cord on legacy Technology debt.
  • Henderson hosted a well-attended fireside chat with Zscaler's CEO and CFO and sat in on 1x1 meetings. 
  • Zscaler's ability to seamlessly deploy and deliver substantial cost savings quickly enables them to power across the more challenging macro environment.
  • The analyst believes ZS is relatively less sensitive to macro pressures and is confident they can maintain strong growth as ZIA, ZPA and ZDX provide immediate savings, strong ROI, and relatively low upfront costs. 
  • Management noted that customers are hyper-focused on ROI, cost savings, and network simplifications, which Zscaler provides. 
  • In a tight budgetary environment, ZS's rapid ROI and foothold across cyber and infrastructure budgets bolster its positioning, enabling continued new customer wins and larger deal sizes. 
  • ZDX and ZCP are growing at a triple-digit pace and will likely represent a high-teens % of new business in FY23.
  • Noting their 20%+ FCF margin and significant market opportunity, Zscaler continues to invest in S&M and R&D headcount. 
  • The analyst thinks ZS has a significant market opportunity with solid win rates and upsell options.
  • Zscaler noted less competition at the enterprise level as large competitors coming at SASE from the firewall perspective are not winning despite sharply discounted, strategic pricing. 
  • Combined with a record pipeline exiting FY1Q, robust Fed growth, no slowdown in prospect engagements, and strong upsell momentum in ZDX and ZCP, the analyst believes Zscaler is poised to maintain stable 30%+ growth through a recession.
  • Price Action: ZS shares traded higher by 1.98% at $106.73 on the last check Friday.
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