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Why Is Zscaler (ZS) Up 8% Since Last Earnings Report?

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It has been about a month since the last earnings report for Zscaler (ZS - Free Report) . Shares have added about 8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zscaler due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Zscaler Q4 Earnings and Revenues Surpass Estimates

Zscaler reported better-than-expected fourth-quarter fiscal 2024 results. The company posted fourth-quarter fiscal 2024 non-GAAP earnings of 88 cents per share, which beat the Zacks Consensus Estimate of 69 cents. It reported non-GAAP earnings of 64 cents in the year-ago quarter.

Zscaler’s fourth-quarter fiscal 2024 revenues were $592.86 million, which surpassed the Zacks Consensus Estimate of $567.62 million and increased 30% year over year. This improvement in revenues was on the back of increased success in selling bigger bundles and multiple product pillars from the beginning of the quarter, achieving faster upsells within a year and strong customer demand for Zscaler’s Zero Trust Exchange platform.

Zscaler’s Top-Line Details

During the fiscal fourth quarter, Zscaler’s calculated billings increased 26.6% year over year to $910.8 million.

Region-wise, the Americas accounted for 55% of revenues, while the EMEA contributed 30%. The Asia Pacific and Japan made up the remaining 15%.

In the fiscal fourth quarter, ZS added multiple large customers across all its offerings, including ZIA, ZPA and ZDX. Its net 12-month trailing dollar-based retention rate was 115%, driven by strong upsells.

Remaining Performance Obligations (RPO), representing Zscaler’s committed non-cancelable future revenues, were $4.42 billion as of July 31, which increased 26% year over year. The current RPO is approximately 48% of the total RPO.

At the end of the quarter, the company had 567 customers with $1 million or higher annualized recurring revenues (ARR). The company added 44 customers during the quarter with $1 million or more in ARR. The company’s customer count for ARR of more than $100,000 reached 3,100 at the end of the fiscal fourth quarter.

Operating Details of Zscaler

The non-GAAP gross profit increased 31% year over year to $462.7 million. The non-GAAP gross margin remained unchanged year over year at 81%.

Total non-GAAP operating expenses, accounting for 59.6% of revenues, increased 25.8% year over year to $353.5 million. Sales & marketing, research & development, and general & administrative expenses jumped 16.4%, 44.4% and 21.3%, respectively, on a year-over-year basis.

The non-GAAP operating income was $127.5 million compared with the year-ago quarter’s $86 million. The non-GAAP operating margin expanded 300 bps year over year to 22%.

Zscaler’s Balance Sheet & Cash Flow

As of July 31, 2024, Zscaler had $2.41 billion in cash, cash equivalents and short-term investments compared with $2.24 billion as of April 30, 2024.

The company generated operating and free cash flows of $203.6 million and $136.3 million, respectively, during the fiscal fourth quarter.

Zscaler’s Guidance for Q1 and FY25

Zscaler initiated its outlook for the fiscal first quarter and fiscal year 2025. For fiscal 2025 the company forecasts revenues in the range of $2.60-$2.62 billion. Calculated billings are projected in the range of $3.11-$3.135 billion. The non-GAAP operating income is projected in the band of $530-$540 million. Non-GAAP earnings per share for fiscal 2025 are expected in the band of $2.81-$2.87.

For the first quarter of fiscal 2025, Zscaler projects revenues between $604 million and $606 million. The gross margin is expected to be 80%. The non-GAAP income from operations is estimated in the band of $114-$116 million. Non-GAAP earnings per share are projected between 62 cents and 63 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -110.77% due to these changes.

VGM Scores

Currently, Zscaler has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zscaler has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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