Zscaler (ZS) delivered a stellar fiscal second-quarter earnings report, significantly surpassing analyst expectations and lifting its full-year outlook.
Despite an uncertain IT spending environment, the cybersecurity firm demonstrated accelerating billings growth and improving sales productivity, driving market share gains against competitors such as Palo Alto Networks (PANW) and Microsoft (MSFT). Shares of Zscaler rose 5.5% following the announcement.
Zscaler reported earnings per share (EPS) of $0.78, well above Wall Street’s forecast of $0.69. Revenue climbed to $647.9 million, exceeding estimates of $634.4 million, representing a 23% year-over-year increase. Billings growth also accelerated to 18%, reaching $742 million, underscoring strong demand for Zscaler’s Zero Trust security solutions.
Capitalizing on Zero Trust and AI Growth
CEO Jay Chaudhry credited the robust results to rising adoption of Zero Trust architecture and AI-driven security solutions. “Growing adoption of Zero Trust and AI is driving strong demand for our platform, resulting in yet another strong quarter that exceeded our guidance on both top and bottom line,” Chaudhry said.
Zscaler’s marketing and sales investments appear to be paying off, with annual recurring revenue (ARR) surpassing $2.7 billion, up 23% year over year. Net revenue retention (NRR) improved to 115%, indicating existing customers are expanding their usage of the platform.
The company’s newly launched “Zero Trust Everywhere” campaign aims to broaden its security coverage beyond traditional workforces to include IoT/OT devices and B2B systems. Additionally, Zscaler is positioning itself to capitalize on an upcoming hardware refresh cycle that will push IT teams to replace outdated VPNs, SD-WANs, and firewalls with Zero Trust solutions.
Upbeat Guidance and Market Outlook
Encouraged by its strong momentum, Zscaler raised its fiscal 2025 EPS guidance to a range of $3.04 to $3.09, above the consensus estimate of $2.99. The company now expects revenue between $2.64 billion and $2.65 billion, aligning with analyst projections.
Zscaler also increased its full-year billings growth forecast to 20.5%, up from a prior 19.6%. Management expects sequential billings growth of 230 basis points in the third quarter, implying growth of 21% in Q3 and 25.4% in Q4.
Analysts responded positively to Zscaler’s strong results and raised guidance. Rosenblatt upgraded the stock to “Buy,” citing improvements in performance, while BMO Capital Markets raised its price target to $233 from $222, highlighting the company’s expanding revenue and free cash flow estimates.
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Encouraged by its strong momentum, Zscaler raised its fiscal 2025 EPS guidance to a range of $3.04 to $3.09, above the consensus estimate of $2.99. The company now expects revenue between $2.64 billion and $2.65 billion, aligning with analyst projections.
Zscaler also increased its full-year billings growth forecast to 20.5%, up from a prior 19.6%. Management expects sequential billings growth of 230 basis points in the third quarter, implying growth of 21% in Q3 and 25.4% in Q4.
Analysts responded positively to Zscaler’s strong results and raised guidance. Rosenblatt upgraded the stock to “Buy,” citing improvements in performance, while BMO Capital Markets raised its price target to $233 from $222, highlighting the company’s expanding revenue and free cash flow estimates.
Future Catalysts and Investor Sentiment
Beyond traditional cybersecurity, Zscaler is benefiting from the rise of generative AI, as enterprises seek to protect sensitive AI models and data. New AI applications such as Microsoft’s 365 Copilot and OpenAI’s ChatGPT have heightened the need for data loss prevention solutions, a space where Zscaler is seeing increased customer demand.
Despite a volatile stock performance over the past year, Zscaler’s strong earnings report and improving fundamentals are boosting investor confidence. The stock remains down about 47% from its all-time high in late 2021, but with continued growth in Zero Trust adoption and AI security, Zscaler appears well-positioned to reclaim lost ground.
Looking ahead, the company expects Q3 revenue of $665 million to $667 million, representing a 20% year-over-year increase. If Zscaler maintains its current momentum, it could continue to outperform expectations and strengthen its leadership in the cloud security space.
Beyond traditional cybersecurity, Zscaler is benefiting from the rise of generative AI, as enterprises seek to protect sensitive AI models and data. New AI applications such as Microsoft’s 365 Copilot and OpenAI’s ChatGPT have heightened the need for data loss prevention solutions, a space where Zscaler is seeing increased customer demand.
Despite a volatile stock performance over the past year, Zscaler’s strong earnings report and improving fundamentals are boosting investor confidence. The stock remains down about 47% from its all-time high in late 2021, but with continued growth in Zero Trust adoption and AI security, Zscaler appears well-positioned to reclaim lost ground.
Looking ahead, the company expects Q3 revenue of $665 million to $667 million, representing a 20% year-over-year increase. If Zscaler maintains its current momentum, it could continue to outperform expectations and strengthen its leadership in the cloud security space.
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