Zscaler (ZS) AI Stock Analysis

• Market Cap: $33.36B
• Dividend Yield: N/A
• Average Volume (3M): 2.43M
• Price to Earnings (P/E): ―
• Beta (1Y): 1.82
• Revenue Growth: 27.77%
• EPS Growth: 89.39%
• Country: US
• Employees: 7,348
• Sector: Technology
• Sector Strength: 63
• Industry: Software - Infrastructure
• EPS (TTM): -0.10
• Shares Outstanding: 154,724,900
• 10 Day Avg. Volume: 2,104,850
• 30 Day Avg. Volume: 2,428,311
• 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: 0.78
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: 15.44
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $239.16
• Price Target Upside: 10.94% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 33

Zscaler's overall score reflects strong financial performance, particularly in revenue growth and cash flow generation, despite ongoing profitability challenges. The company's technical indicators suggest stability, but with potential short-term bearish signals. The valuation is less favorable due to lack of earnings and dividends. The recent earnings call highlights significant growth and strategic initiatives, though macroeconomic conditions present some risks.

Positive Factors

Market Confidence

ZS's $3B ARR guide reflects confidence in both demand trends and execution cadence.

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.

Strategic Partnerships

ZS has seen a significant increase in engagement with Global System Integrators, embedding ZS into their network and security transformation practices.

Negative Factors

Customer Growth Rate

The customer base growth rate has slowed down, increasing by only 11% year over year compared to previous growth rates of 12% and 14%.

Market Competition

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

Zscaler Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 215.58
• 50DMA: Positive
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ZS, the sentiment is Positive. The current price of 215.58 is above the 20-day moving average (MA) of 197.89, above the 50-day MA of 200.59, and above the 200-day MA of 191.95, indicating a bullish trend. The MACD of 1.81 indicates Negative momentum. The RSI at 60.14 is Neutral, neither overbought nor oversold. The STOCH value of 82.22 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for ZS.

Zscaler Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
CHKP	78 Outperform	$22.38B	27.27	30.92%	―	6.40%	6.49%
FTNT	76 Outperform	$78.28B	45.04	338.74%	―	12.27%	54.69%
CRWD	76 Outperform	$105.32B	721.64	-0.69%	―	29.39%	-119.62%
ZS	74 Outperform	$33.36B	―	-1.21%	―	27.77%	89.39%
PANW	74 Outperform	$118.50B	101.11	23.38%	―	13.86%	-46.44%
CYBR	66 Neutral	$17.28B	1,777.39	-5.91%	―	33.10%	-20.31%
Sector *	59 Neutral	$10.73B	10.11	-6.65%	3.02%	7.41%	-11.17%

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.