It has been about a month since the last earnings report for Zscaler (ZS). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zscaler due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Zscaler Q1 Earnings and Revenues Surpass Estimates
Zscaler reported first-quarter fiscal 2025 non-GAAP earnings of 77 cents per share, which outpaced the Zacks Consensus Estimate by 22.2%. Moreover, the bottom line experienced a significant 40% rise driven by higher revenues and efficient cost management.
Zscaler’s first-quarter fiscal 2025 revenues of $628 million beat the Zacks Consensus Estimate by 3.7% and exceeded management’s guidance of $604-$606 million. The top line grew 26.4% year over year, demonstrating the company’s strong market position, fueled by heightened customer commitments to the Zero Trust Exchange platform and a growing demand for its artificial intelligence (AI)-based solutions.
Zscaler’s Q1 Top-Line Details
During the first quarter, Zscaler’s calculated billings increased 13% year over year to $516.7 million.
Region-wise, the Americas accounted for 54% of revenues, while the EMEA contributed 30%. The Asia Pacific and Japan made up the remaining 16%.
In the fiscal first 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 114%, driven by strong upsells.
Remaining Performance Obligations (“RPO”), representing Zscaler’s committed non-cancelable future revenues, were $4.41 billion as of Oct. 31, which increased 26% year over year. The current RPO is approximately 49% of the total RPO.
At the end of the quarter, the company had 585 customers with $1 million or higher annualized recurring revenues (ARR). The company added more than 65 customers during the quarter, with $5 million or more in ARR. Zscaler’s customer count for ARR of more than $100,000 reached 3,165 at the end of the first quarter.
Zscaler’s Operating Details
The non-GAAP gross profit increased 26.2% year over year to $506 million. The non-GAAP gross margin contracted 10 basis points (bps) on a year-over-year basis to 80.6%.
Total non-GAAP operating expenses, accounting for 68.8% of revenues, increased 19% year over year to $372 million.
The non-GAAP operating income was $134.1 million compared with the year-ago quarter’s $89.7 million. The non-GAAP operating margin expanded 330 bps year over year to 21%.
Zscaler’s Balance Sheet & Cash Flow
As of Oct. 31, 2024, Zscaler had $2.71 billion in cash, cash equivalents and short-term investments compared with $2.41 billion as of July 31, 2024.
The company generated operating and free cash flows of $331.3 million and $291.9 million, respectively, during the first quarter. ZS generated operating and free cash flows of $260.8 million and $224.7 million, respectively, in the year-ago quarter.
Zscaler Updates Guidance for FY25
Zscaler revised its outlook for fiscal 2025. The company forecasts revenues in the range of $2.623-$2.643 billion, up from the previous guidance of $2.60 billion to $2.62 billion. Calculated billings are now expected in the range of $3.124-$3.149 billion, up from the previous guidance of $3.110 billion to $3.135 billion. Non-GAAP earnings per share for fiscal 2025 are expected in the band of $2.94-$2.99 compared with the previous guidance range of $2.81-$2.87.
For the second quarter of fiscal 2025, Zscaler projects revenues between $633 million and $635 million. Non-GAAP earnings per share are projected between 68 cents and 69 cents.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 73.49% due to these changes.
VGM Scores
At this time, Zscaler has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Zscaler has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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Zscaler, Inc. (ZS) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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