Zscaler (ZS) AI Stock Analysis

• Market Cap: $27.03B
• Dividend Yield: N/A
• Average Volume (3M): 2.42M
• Price to Earnings (P/E): ―
• Beta (1Y): 1.83
• Revenue Growth: 27.77%
• EPS Growth: 89.39%
• Country: US
• Employees: 7,348
• Sector: Technology
• Sector Strength: 40
• Industry: Software - Infrastructure
• EPS (TTM): -0.10
• Shares Outstanding: 154,724,900
• 10 Day Avg. Volume: 2,634,179
• 30 Day Avg. Volume: 2,419,508
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 13.11
• Price to Cash Flow (P/CF): 44.20
• P/FCF Ratio: 54.80
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $239.43
• Price Target Upside: 37.08% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 31

Zscaler's overall score of 73 reflects strong financial performance, particularly in revenue growth and cash flow generation, coupled with positive earnings call insights on strategic initiatives and profitability improvements. Technical analysis suggests moderate bullish momentum. However, the high P/E ratio and lack of dividend yield present valuation challenges, while macroeconomic factors and variability in net retention rate pose potential risks.

Positive Factors

Platform Strength

Emerging products are gaining momentum, growing at a rate of approximately twice that of core products, which indicates strong platform strength beyond the main offerings.

Revenue Growth

ZS's solid performance—23% revenue growth, 22% FCF margin, 23% ARR growth—reflected the still emerging results of carefully planned strategic investments.

Sales Productivity

Go-to-market initiatives are driving enterprise penetration and larger deals, lifting sales productivity and reducing sales attrition.

Negative Factors

Competition

Emerging products are showing solid traction but the majority of revenues, or 80% of revenues, are still generated by core ZIA and ZPA products where competition is mounting.

Execution Risk

2H billings guidance, especially 4Q guidance calls for a >400bps sequential improvement, which carries an execution risk.

Macro Environment

There is concern about ZS's ability to consistently close large, transformative deals due to the macro environment and increasing competition in the SASE market.

Zscaler Business Overview & Revenue Model

Company Description

Zscaler, Inc. operates as a cloud security company worldwide. The company provides Zscaler Internet Access solution that provides users, servers, operational technology, Internet of Things device secure access to externally managed applications, including software-as-a-service (SaaS) applications and Internet destinations; and Zscaler Private Access solution, which is designed to provide access to managed applications hosted internally in data centers, and private or public clouds. It also offers Zscaler Digital Experience that measures end-to-end user experience across business applications, as well as provides an easy to understand digital experience score for each user, application, and location within an enterprise. In addition, the company provides workload segmentation solutions comprising Zscaler Cloud Security Posture Management that identifies and remediates application misconfigurations in SaaS, infrastructure as a service, and platform as a service to reduce risk and ensure compliance with industry and organizational benchmarks; and Zscaler Cloud Workload Segmentation, which is designed to secure application-to-application communications inside public clouds and data centers to stop lateral threat movement, as well as prevents application compromise and reduces the risk of data breaches. Its platform modules include Zscaler Central Authority, Zscaler Enforcement Node, and Zscaler Log Servers. It serves customers in airlines and transportation, conglomerates, consumer goods and retail, financial services, healthcare, manufacturing, media and communications, public sector and education, technology, and telecommunications services industries. The company was formerly known as SafeChannel, Inc., and changed its name to Zscaler, Inc. in August 2008. Zscaler, Inc. was incorporated in 2007 and is headquartered in San Jose, California.

How the Company Makes Money

Zscaler makes money primarily through a subscription-based revenue model. The company offers its cybersecurity services via annual or multi-year subscriptions, which provide clients access to its cloud-native platform. Key revenue streams include subscriptions to its core offerings such as Zscaler Internet Access (ZIA) and Zscaler Private Access (ZPA), providing secure internet and application access respectively. Zscaler's earnings are further bolstered by its ability to scale services according to the needs of different enterprise sizes, ranging from small businesses to large multinational corporations. Strategic partnerships with global technology leaders and service integrators also enhance its market reach and contribute to revenue growth. Additionally, the company invests in ongoing innovation and enhancements to its platform to meet evolving cybersecurity demands, thereby attracting and retaining a diverse client base.

Zscaler Financial Statement Overview

Summary

Zscaler demonstrates impressive revenue growth and strong gross margins, indicative of its competitive position in the software industry. Despite improvements, profitability remains a challenge with negative net income. The company's balance sheet is healthy, marked by manageable leverage and strong equity. Cash flow generation is a strong point, with positive free cash flow trends supporting future growth opportunities.

Income Statement

Zscaler has shown robust revenue growth with a TTM increase of 11.7% compared to the previous year. The company maintains a high gross profit margin of 77.7% in the TTM, indicative of strong operational efficiency. However, the net profit margin remains negative at -0.6%, reflecting ongoing challenges with profitability. Both EBIT and EBITDA margins have improved, yet they still indicate operational losses.

Balance Sheet

The balance sheet reflects a solid equity position with a debt-to-equity ratio of 0.77, suggesting manageable leverage compared to industry norms. The equity ratio stands at 32.1%, indicating a strong capital structure. Return on equity remains negative due to net losses, pointing to profitability challenges.

Cash Flow

Zscaler's cash flow performance is strong, with a significant free cash flow growth rate of 31.7% in the TTM. The operating cash flow to net income ratio is robust, highlighting efficient cash generation relative to accounting profits. Free cash flow significantly exceeds net income, reflecting prudent capital management.

Breakdown
TTM	Sep 2024	Sep 2023	Sep 2022	Sep 2021	Sep 2020
Income Statement		Total Revenue
2.42B	2.17B	1.62B	1.09B	673.10M	431.27M
	Gross Profit
1.88B	1.69B	1.25B	848.66M	522.78M	335.54M
	EBIT
-102.18M	-121.48M	-234.62M	-327.43M	-207.81M	-113.96M
	EBITDA
105.28M	64.79M	-76.72M	-277.58M	-167.36M	-86.83M
	Net Income Common Stockholders
-15.53M	-57.71M	-202.34M	-390.28M	-262.03M	-115.12M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
92.84M	2.41B	2.10B	1.73B	1.50B	1.37B
	Total Assets
0.00	4.70B	3.61B	2.83B	2.26B	1.83B
	Total Debt
0.00	1.24B	1.21B	1.05B	964.61M	905.24M
	Net Debt
92.84M	-185.12M	-51.66M	32.51M	688.71M	763.39M
	Total Liabilities
0.00	3.43B	2.88B	2.26B	1.73B	1.35B
	Stockholders Equity
66.67M	1.27B	725.11M	573.30M	528.89M	484.83M
Cash Flow		Free Cash Flow
770.21M	584.95M	333.62M	231.33M	143.74M	27.51M
	Operating Cash Flow
887.74M	779.85M	462.34M	321.91M	202.04M	79.32M
	Investing Cash Flow
-635.57M	-683.18M	-259.34M	374.06M	-109.67M	-1.04B
	Financing Cash Flow
67.75M	64.21M	45.99M	41.34M	41.67M	1.02B

Zscaler Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 174.67
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ZS, the sentiment is Negative. The current price of 174.67 is below the 20-day moving average (MA) of 201.17, below the 50-day MA of 202.00, and below the 200-day MA of 191.34, indicating a bearish trend. The MACD of 1.42 indicates Positive momentum. The RSI at 48.29 is Neutral, neither overbought nor oversold. The STOCH value of 38.42 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ZS.

Zscaler Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
CHKP	79 Outperform	$23.36B	28.91	30.15%	―	6.22%	6.15%
PANW	78 Outperform	$101.68B	86.76	23.38%	―	13.86%	-46.44%
ZS	73 Outperform	$27.03B	―	-1.21%	―	27.77%	89.39%
CRWD	73 Outperform	$79.72B	721.64	-0.69%	―	29.39%	-119.62%
FTNT	70 Outperform	$65.14B	37.48	338.74%	―	12.27%	54.69%
CYBR	67 Neutral	$15.16B	1,777.39	-5.91%	―	33.10%	-20.31%
Sector *	57 Neutral	$18.54B	9.84	-14.38%	2.71%	5.07%	-23.65%

Zscaler Corporate Events

Zscaler 2024 Meeting: Equity Plan Amendment and Elections

On January 10, 2025, during Zscaler’s 2024 Annual Meeting of Stockholders, the company approved an amendment to its FY2018 Equity Incentive Plan, eliminating its original 10-year term. This amendment allows for more flexible long-term incentive awards, including stock options and restricted stock, subject to the discretion of Zscaler’s compensation committee. The meeting also saw the election of Class I directors and the ratification of PricewaterhouseCoopers LLP as the independent auditor for fiscal year 2025, as well as approval of executive officer compensation.