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Zscaler Plunges 15% Despite Q2 Beat

Cloud-based security solutions provider Zscaler, Inc. (NASDAQ: ZS) reported better-than-expected second-quarter results. Backed by continued demand for its zero-trust security offerings, ZS exceeded both earnings and revenue expectations. The company even guided for the third quarter and full-year fiscal 2022, which came in better than analysts’ estimates.

However, following the news, the ZS stock broke the upward momentum of intraday trading where the shares had gained 10%, and plunged 14.9% during the extended trading session on February 24. At the time of writing, during pre-market trading today, the stock is down 13.4%.

Better-than-expected Q4 Results

Zscaler’s revenue leaped 63% year-over-year to $255.6 million in Q2 and outpaced analysts’ estimates of $241.56 million.

Notably, in Q2, the company’s calculated billings grew 59% year-over-year to $367.7 million and deferred revenue advanced 70% to $759.9 million.

Moreover, adjusted earnings for the quarter stood at $0.13 per share, 2 cents higher than analyst estimates of $0.11 per share.

Official Comments

Happy with the company’s performance, Chairman and CEO of Zscaler, Jay Chaudhry, said, “The importance of our Zero Trust Exchange architecture has never been clearer to customers undertaking digital transformation. Customers are not only gaining security advantages from our Zero Trust model but they are also reaping the benefits of faster innovation and economics from our global cloud, which is now processing more than 210 billion transactions per day.”

Q3 and FY22 Guidance

Based on current business momentum, Zscaler guided for third-quarter revenue to fall between $270 million and $272 million, ahead of the consensus estimate of $256.67 million.

However, the Q3 adjusted earnings forecast of $0.10 per share to $0.11 per share came marginally lower than the consensus estimates of $0.11 per share.

Additionally, for FY22, Zscaler guided for revenue to fall between $1.045 billion and $1.05 billion, compared to the consensus of $1.01 billion. Similarly, adjusted earnings for FY22 are projected to be between $0.54 per share and $0.56 per share, again higher than the consensus of $0.52 per share.

Consensus View

Responding to Zscaler’s Q2 performance, Robert W. Baird analyst Jonathan Ruykhaver lowered the price target on the stock to $300 (13.9% upside potential) from $325, while maintaining a Buy rating.

Commenting on his view, Ruykhaver said, “Outside of Fed, commentary remains positive across the board, with ZS seeing adoption of the broader platform of solutions driven by security/network transformation. We like plans for continued investment back into the business as ZS works to capture the long-term opportunity. Overall, we see Zscaler as well-positioned around secular trends driving greater platform adoption and look to see a continuation of strong execution.”

Overall, the ZS stock has a Moderate Buy consensus rating based on 21 Buys, 4 Holds, and 2 Sells. The average Zscaler price target of $371.96 implies 41.2% upside potential to current levels. However, ZS shares have lost 12.7% year-to-date vis-à-vis gaining 34.5% over the past year.

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