Zscaler: Preliminary Results Showcase Strength in Sales, Improved Profitability

Narrow-moat Zscaler put out preliminary fiscal third-quarter results ahead of its full release slated for the beginning of June, with sales and profitability exceeding our estimates. While we are not changing our $170 fair value estimate as we wait for full results, Zscaler's impressive performance underscores our thesis that cybersecurity firms are relatively insulated from ongoing IT budget cuts. The shares are up more than 20% following the May 8 announcement. Despite the pop, we believe that Zscaler is undervalued, trading at an attractive price for long-term investors willing to stomach near-term volatility.