Zscaler Continues Growth at Scale in Q3; Shares Undervalued to Our Maintained $265 FVE

We are maintaining our $265 fair value estimate for narrow-moat Zscaler after its third-quarter results blew away our expectations for growth and earnings. Shares increased slightly after reporting, and we still believe there is substantial upside for long-term investors. We expect robust demand for Zscaler's solutions to continue, due to being at the forefront of protecting Internet-bound requests as organizations undergo digital transformations. The major trend of organizations adopting zero-trust security architecture is aligned with Zscaler's portfolio, and we think Zscaler will keep landing more substantial deals as organizations adopt various products and consolidate security spending. Zscaler lowers the complexity of security management while its customers become further locked into its product ecosystem. We foresee no shortage of growth opportunities for Zscaler's core solutions and as it broadens its offerings into digital experience monitoring and cloud workload protection.