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Zscaler Inc

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

ZScaler Posts Strong Q2 as New Products Gain Traction; Shares Fairly Valued

We are maintaining our fair value estimate of $265 per share for narrow-moat Zscaler after it reported strong second-quarter results. Zscaler continues to achieve revenue expansion to the tune of 63% year over year behind secular tailwinds stemming from organizations making digital transformations and increased adoption of zero-trust security. That said, our model already incorporates robust growth. As expected, Zscaler’s expanded product offering has enabled it to not only up- and cross-sell but to increase switching costs for its existing customers. These factors were on display as its dollar-based net retention rate was above 125% for the quarter. Newer product ZDX (digital experience) has been a notable component in Zscaler’s ability to upsell large customers through its ZIA (Internet access) bundle. With recent widespread sell-offs in the technology sector, we see shares as increasingly attractive.

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