To The Moon

$Zscaler Inc.(ZS)$ , one of the top cybersecurity stocks in the market is down ~22% in the past week -- is this a buying opportunity? 🤔

Zscaler stands as a leader in cloud-based security, specializing in secure access to applications and data across private and public networks. As organizations increasingly move towards a cloud-first approach, Zscaler's services are pivotal for enabling secure digital transformation.

Zscaler's competitive advantage lies in its unique position within the Security as a Service sector. Its cloud-native architecture enables it to provide a scalable and integrated security solution that traditional on-premises security providers struggle to match. This architecture allows for seamless user experiences and superior threat protection -- which is critical as businesses adopt remote work models and require ubiquitous access to applications and data.

Earnings Analysis

Customer spend over $1M annually increased by 26%, though this marks a slowdown from the previous quarter's 31%. This cooling trend is mirrored in the company’s financials, with billings growth slowing to 20% this year from 27% last year, and revenue growth projections adjusted to 22% from last year’s 30%.

This deceleration can be attributed to a challenging environment for scaling operations, which may have been exacerbated by recent changes in the sales process and leadership dynamics. In response, Zscaler is transitioning to an account-centric sales model. This strategic shift has already shown promising results, including a doubling of its Global 2000 customer base and improved opportunities for upselling.

Zscaler is innovating with AI-driven security solutions and analytics, which contributed 3% to the 4th quarter's growth. Emerging products accounted for 22% of new business in FY24, with targets to maintain mid-20% range in FY25. Despite a cautious market reaction to a small billings guide miss and back-end loaded growth projections (1H25 at 13%, 2H25 at 25%) -- management remains optimistic about achieving a $5B ARR target, with an expected FCF margin at 24%.

Product Offerings

• Zscaler Internet Access (ZIA): This platform is designed to securely connect users to externally managed applications across the internet and public SaaS services. ZIA offers comprehensive security checks and policies to protect against a variety of online threats, ensuring that any connection from any device is fully secure -- thereby enhancing enterprise cybersecurity postures.

• Zscaler Private Access (ZPA): ZPA provides secure access to internal applications without exposing them to the public internet, thereby eliminating the risk of external attacks -- this is particularly beneficial for enterprises that are moving applications to the cloud and require secure access without the latency and complexity of traditional VPN solutions.

• Zscaler B2B: A solution designed to simplify and secure business-to-business communication that allows companies to provide secure and private access to their applications for partners and customers. It enhances security while maintaining a seamless user experience -- which is crucial for maintaining business continuity and safeguarding sensitive data.

• Zscaler Digital Experience (ZDX): This tool monitors user experiences across the Zscaler security cloud to pinpoint issues affecting performance. By ensuring high performance and user satisfaction -- ZDX helps organizations optimize the end-user experience in a secure environment.

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