To The Moon

$Zscaler Inc.(ZS)$ is scheduled to report first-quarter fiscal 2025 results on 02 Dec after the market close.

For this fiscal first quarter of 2025, ZS is expecting total revenues to be between $604 million and $606 million. This is around 21% growth from same period one year ago. ZS projects non-GAAP income from operations to be between $114 million and $116 million.

ZS is looking at non-GAAP earnings per share (EPS) to be between 62 cents and 63 cents, while consensus estimate for first-quarter non-GAAP EPS has remained unchanged at 63 cents.

Zscaler (ZS) Peer CrowdStrike (CRWD) Stock Decline Due To Not So Ideal Outlook

On 27 November 2024, we saw $CrowdStrike Holdings, Inc.(CRWD)$ stock decline by 6.49% despite it reported better-than-expected earnings and revenue for the third quarter of fiscal 2025, but the net new annual recurring revenue upside and implied January quarter ARR likely fell slightly short of consensus expectations,

So CRWD ongoing headwinds from more customer commitment packages will likely move consensus ARR estimates lower for the next few quarters. With this in mind, we might be able to gauge how the cloud cybersecurity market is doing, as both ZS and CRWD stand to benefit from increased demand in the cybersecurity and cloud computing space, due to major ransomware attacks that made headlines during the pandemic.

CRWD and ZS have both emerged as major players, winning large contracts and making large acquisitions. CRWD is more focused on security and threat mitigation, recently launching Falcon+, which is a global network of trained experts monitoring all aspects of the web and dark web for suspicious signs of nefarious activity that might threaten their clientele.

Partnership Between ZS and CRWD In New Integration To Improve Security Operations

In September 2024, Zscaler and CrowdStrike have announced new integrations to improve security operations. This collaboration aims to provide advanced threat detection, response, and risk management through AI and Zero Trust strategies.

The partnership introduces the Falcon Foundry for Zscaler app, which is designed to facilitate threat intelligence sharing and the development of custom SOAR (Security Orchestration, Automation, and Response) workflows. This is part of the integration with CrowdStrike Falcon® Next-Gen SIEM, a platform that modernizes security operations centers (SOCs).

In addition to threat sharing and response coordination, the integration between Zscaler and CrowdStrike will offer holistic cyber risk quantification and visualization through Zscaler Risk360™. This tool pulls in detailed incident, asset, and vulnerability data from CrowdStrike to provide comprehensive insights into an organization's security risk factors.

Competitive Advantage of ZS Over CRWD Lies in AI and Analytics

CRWD offers AI-based threat protection for individuals and companies. ZS is slightly more focused on providing analytics to aid clients of their cloud-based solutions whose companies are scaling up their network.

As both grow into the cloud, the analytic tools are designed to not only protect companies from security threats but also to make informed decisions about the effects of changes, such as an increasingly remote workforce. Due to strong demand for zero trust security and new AI-powered innovations.

Zero Trust Security Market is growing with increase in cyber threats due to both increasing sophistication of attacks and expanding use of remote workforces as well as cloud-based systems. The demand for zero trust security is rapidly increasing as organizations strive to safeguard their networks and data against increasingly sophisticated cyber threats and organizations shifting away from their traditional systems to more cloud-based work processes especially for remote based working setups. Enterprises are now redistributing their resources to cybersecurity to direct funds at complex cyberattacks grew by 28% in 2022 and they analysed on zero trust framework.

Zscaler Higher Debt Not So High Cash Might Be A Concern

CRWD($77.3B) has a higher market cap than ZS($28.8B). CRWD YTD gains are higher at: 36.139 vs. ZS (-7.492). CRWD has higher annual earnings (EBITDA): 294M vs. ZS (-27.8M).

CRWD has more cash in the bank: 3.48B vs. ZS (2.46B). CRWD has less debt than ZS: CRWD (793M) vs ZS (1.23B). CRWD has higher revenues than ZS: CRWD (3.06B) vs ZS (1.9B).

One thing we need to take note is ZS debt as well as its cash, because for ZS as a security technology business, there is research and development, and these require both CAPEX and OPEX spending, so ZS might not be able to take on more debts and this could eat into its cash.

Cloud Security Spending Might See Resources Deployed To Other Areas Like AI

Revenue in the Cloud Security market is projected to reach US$2.05bn in 2024. Revenue is expected to show an annual growth rate (CAGR 2024-2029) of 26.34%, resulting in a market volume of US$6.60bn by 2029.

The average Spend per Employee in the Cloud Security market is projected to reach US$0.57 in 2024. In global comparison, most revenue will be generated in the United States (US$869.2m in 2024).

But if we looked at the revenue change after 2024, there is a signs of declining, though not significant, but it would mean that spending cybersecurity might not be of priority as enterprise might move their resources to areas of AI.

With organizations already encouraging staffs to go back to office more, will the budget to spend on remote based working setups still remains, and enterprise might reduce their resources to cybersecurity on the area of remote cyber threats protection.

Zscaler (ZS) Price Target Forecast

Based on 31 Wall Street analysts offering 12 month price targets for Zscaler in the last 3 months. The average price target is $232.04 with a high forecast of $290.00 and a low forecast of $180.00. The average price target represents a 13.21% change from the last price of $204.96.

There might be a chance of higher price target if ZS could show that their zero trust solutions business is having a stronger growth in coming quarters.

ZS Stock Price Performance Not As Strong As CRWD

If we were to look at the weekly stock price movement, we can see that ZS has actually lost 1.62% compared to CRWD which only lost 0.08% despite plunging 6.49% after its earnings on 27 Nov.

So I am expecting ZS might face similar decline in its stock price despite a strong earnings report, but what could change the stock price movement might be the demand for ZS’s zero trust security solutions for AI development, AI development is also concurrently working on securing their ecosystem, so ZS solutions might be something that AI companies can consider.

Technical Analysis - RSI, MACD and Multi-timeframe (MTF)

If we looked at the technical summary, ZS seems to have a positive trend from 2 days ago when we saw CRWD dropped by more than 6% after its earnings, but based on RSI, both have similar downside.

But MACD is encouraging as we are seeing 84% odds of an upside, so I will show the actual MACD and Multi-timeframe (MTF ) movement in the next small section.

There is an attempt to make a bullish MACD crossover by ZS on 26 Nov, but it did not work out, but ZS continue to trade above the short-term and long-term MA, and MTF though not showing any confirmed strong uptrend, we can see that there is upside for the mid and long period.

We need ZS to show us some strong conviction from investors in today (29 Nov) and on 02 Dec before its earnings, though there is a possibility of a downside if ZS failed to provide a much better-than-expected outlook guidance.

Summary

I think ZS might have a better chance as a cloud security provider with its zero trust security solutions, the demand and revenue from this business should be able to contribute to lower some headwinds that it might faced from its cloud security business.

I will be monitoring this stock to see if can take a position today (29 Nov) while the investors sentiment start to build up, do note that today is a short trading session so volume might be low.

Appreciate if you could share your thoughts in the comment section whether you think ZS can beat earnings estimate and provide a much better outlook guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.