Stock of Zscaler Drops After Execs Focus on 'Challenging' Environment

Zscaler Inc. experienced a fluctuation in its share performance during the extended trading session on Tuesday. Despite a strong quarter and promising outlook that exceeded Wall Street's expectations, the company's shares took a downturn as executives noted extended deal closure times within the current business climate.

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During his prepared remarks, Chief Executive Jay Chaudry acknowledged the company's robust performance, highlighting achievements such as gross margins exceeding 80% and annual recurring revenue surging past the $2 billion mark. However, as Chaudry underscored Zscaler's effectiveness in the face of a challenging macroeconomic environment, the stock, which had initially risen by as much as 5% following the earnings release, experienced a decline of up to 3% during the conference call. This shift followed a 2.8% gain in the regular trading session, with the stock closing at $162.74.

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Chief Financial Officer Remo Canessa further elaborated on the global macroeconomic uncertainty, emphasizing the cautious approach the company was taking in light of economic volatility. Canessa acknowledged that closing deals within a 90-day timeframe remained a challenge due to the cautious stance of customers and the scrutiny of large transactions. He also explained that in some cases, Zscaler was enabling new strategic customers to gradually increase their subscription commitments, a strategy that might reduce initial-year billings but contribute to a higher annual run-rate in the second year.

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In terms of future projections, Zscaler forecasted adjusted earnings in the range of approximately 48 to 49 cents per share, with revenue estimated to fall between $472 million and $474 million for the upcoming fiscal first quarter. Analysts polled by FactSet had earlier projected earnings of 45 cents per share on revenue of $464.8 million, with billings at $434.1 million for the quarter.

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For the full year, Zscaler anticipated earnings ranging from $2.20 to $2.25 per share, coupled with revenue expectations of $2.05 billion to $2.07 billion and billings estimated between $2.52 billion and $2.56 billion. Analysts had previously estimated earnings of $2.11 per share on revenue of $2.05 billion, with billings totaling $2.47 billion.

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In their fiscal fourth-quarter report, Zscaler reported a loss of $30.7 million, equivalent to 21 cents per share, as opposed to a loss of $97.7 million, or 69 cents per share, in the same period the previous year. Adjusted net income, excluding stock-based compensation and other items, stood at 64 cents per share, compared to 25 cents per share in the prior year. The company reported revenue of $455 million, a notable increase from $318.1 million in the same quarter the prior year, with billings experiencing a 38% growth, reaching $719.3 million.

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Zscaler's forecasts for the quarter included adjusted earnings of approximately 49 cents per share on revenue ranging from $429 million to $431 million. In contrast, analysts surveyed by FactSet had projected earnings of 49 cents per share on revenue of $430.4 million, with billings anticipated to reach $657.5 million.

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As of the close of trading on Tuesday, Zscaler's year-to-date stock performance indicated a gain of 45.4%, significantly surpassing the 17.1% gain of the S&P 500, the 34% increase of the tech-heavy Nasdaq Composite, and the 20.9% gain of the ETFMG Prime Cyber Security exchange-traded fund.

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