What we think about Zscaler (ZS)
Zscaler in Three Words: Cloud-Based, Zero-Trust, Leadership
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Background
Zscaler has firmly established itself as a leader in the cloud-based cybersecurity industry. Its innovative product suite provides comprehensive protection for enterprises shifting to the cloud, putting it in an advantageous position. With a vast $70 billion total addressable market and its successful land-and-expand strategy, Zscaler is poised for tremendous growth into the future.
Zscaler recent third quarter 2024 results were strong, with revenue growing 32% year-over-year to $553 million, beating guidance, and calculated billings increasing 30% to $628 million.
Customers with over $ million ARR grew 31% year-over-year to 523. The company achieved GAAP profitability for the first time and raised its full-year outlook based on the quarter's outperformance.
Zscaler's Zero Trust Exchange platform continues to see robust demand as customers look to replace legacy firewall and VPN infrastructure, with recent competitor vulnerabilities further driving interest. Its expanding product portfolio, including emerging offerings like workload protection, Zscaler Digital Experience (ZDX), and data protection, contributed nearly 25% of new and upsell business in Q3.
However, Zscaler experienced higher than expected sales attrition following the departure of its COO, which may impact near-term productivity. Newly appointed CRO Mike Rich (who came from ServiceNow) has assembled his leadership team and the company ramped up sales rep hiring in May, but ramp time could be a headwind.
Despite these challenges and a tough macro environment requiring tangible cost savings to gain deal approval, Zscaler remains confident in its ability to attract top talent and drive sustainable growth through its differentiated platform, strong customer value proposition, and continued innovation.
With over $1 billion net cash position, long runway, strong execution, a founder-led management team, and an enticing valuation, Zscaler presents a compelling investment opportunity for long-term market-beating returns.
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