Zscaler Shares Spike as Cloud Security Growth Propels Strong Earnings

Guidance also came in strong. For the January quarter, the company sees revenue of $146 million to $148 million, with non-GAAP profit of 7 to 8 cents a share; previous Street consensus was $140.5 million and 7 cents. For the full year ending July 2021, Zscaler now sees revenue of $608 million to $612 million, with non-GAAP profit of 37 to 38 cents a share, up from a previous forecast of $580 million to $590 million in revenue and non-GAAP profit of 28 to 30 cents a share.

“Our customers are accelerating their digital transformation, and this drove our strong first quarter results,” Zscaler CEO Jay Chaudhry said in a statement. “Organizations are turning to the Zscaler Zero Trust Exchange platform for the right security architecture, which can be implemented easily and rapidly. Our visibility and business momentum remain strong, and we are pleased to increase our fiscal year guidance.”

Analysts, to say the least, were pleased with the quarter.

Needham analyst Alex Henderson this morning repeated his Strong Buy rating on Zscaler shares, lifting his price target on the stock to $190, from $180. He saw across-the-board strength in the quarter’s results. “It’s difficult to pick what was best about the quarter,” he writes. “Revenue growth of 52% and calculated billings growth of 64% were both nicely ahead of Street forecasts and actually accelerating. On the other hand, operating margins improved sharply.” He notes that operating margins at 13.8% were more than double the Street consensus forecast at 6.7% and well above the 3.1% reported a year ago.

“Zscaler is a unique investment vehicle with exceptional long-term value potential,” Henderson adds. “Zscaler does security right. We believe this is going to be a major company, and we recommend investors buy these shares, establish a core position, and add on any weakness.”

Citigroup analyst Walter Pritchard is equally enthusiastic, repeating his Buy rating and upping his price target to $210, from $205. “We believe improvements in sales execution, relatively long platform adoption times and new product portfolio keep growth durable,” he writes. “This is on [a] backdrop of strong secular demand around securing cloud workloads.”

Wedbush analyst Daniel Ives writes that the company delivered a “Mahomes-like quarter,” a reference to the Kansas City Chiefs star quarterback Pat Mahomes (who likely would not be a great hire as a security software engineer, by the way.) Ives repeats his Outperform rating, and raises his target to $185, from $175.

“Zscaler delivered another Mahomes-like quarter last night with the company posting billings growth of an eye-popping 64%, blowing away the Street’s expectations and speaking to the underlying cloud deal momentum the company is seeing in the field,” Ives writes in a research note. “The company yet again raised guidance as deal flow and pipeline activity are further inflecting in our opinion. With strong execution and massive cloud tailwinds which have been accelerated in this Covid environment, Zscaler is helping drive cybersecurity transformative trends for enterprises across the board.”

Ives adds that he thinks the company is “the best pure play in the cloud security arena.”

Zscaler shares spiked 27%, to $186.20, in trading Thursday.

Write to Eric J. Savitz at eric.savitz@barrons.com