- Stock set to open 10% down at $131.50
- Q1 earnings beat the Street estimates by 11.5%
- Second-half growth weighting worries investors
Money has been flooding into the cybersecurity space as governments, corporates and ordinary consumers invest in ways to protect themselves in a digital world. So why did shares in Zscaler (ZS:NASDAQ) plunge 10% overnight despite beating fiscal first-quarter forecasts?
Zscaler shares are expected to open later today at $131.50, about 56% down on calendar 2022.
Q1 BEATS THE STREET
Zscaler provides cloud security for thousands of companies and workers, making sure they have secure access only to the internal apps they need to get their work done.
Key financial growth metrics were strong. Q1 revenue jumped 54% to $355.5 million while adjusted net income more than doubled year-on-year to $44.4 million. That works out at $0.29 earnings per share, 11.5% ahead of the $0.26 expected by Wall Street analysts. The revenue forecast had been for $340.7 million, so a 4%-plus beat there too.
Zscaler’s billings climbed 37% compared to the same period last year, and deferred revenue topped the $1 billion mark, up 55% from the first quarter of fiscal 2022. Free cash flow improved to $96 million for the period.
MUTED FULL YEAR GUIDANCE
Yet investors didn't seem satisfied with the cloud security provider's outlook for the full 2023 fiscal year to 31 July. Zscaler expects sales to come in between $1.52 billion and $1.53 billion, which would represent considerable growth from the rough $1.09 billion that the software company brought in during fiscal 2022.
Zscaler sees EPS improving to between $1.23 and $1.25 on an adjusted basis, on revenue of about $1.53 billion for the year and billings of $1.93 billion to $1.94 billion. But with a considerable bias in billings growth to come in the second half of the year, a weighting issue that has clearly made investors a little uncomfortable.
Zscaler’s share price decline has come despite beating quarterly earnings and revenue estimates in every quarter. In Q4 for fiscal 2022 (to 31 Jul) beat the Street across the board, and the stock logged its best one-day performance since the company went public in 2018.
