Smaller Beats, Smaller Raises; Macro Impacts Weigh on Zscaler’s Business; Lowering FVE to $170

We are lowering our fair value estimate for narrow-moat Zscaler to $170 from $211 primarily because of a reduction in our top-line growth estimates as macroeconomic headwinds bear down on the firm. While last quarter remained strong despite the macro tightness, this quarter painted a different picture for Zscaler as the firm noted macroeconomic pressures affecting its billings as customers scrutinized their spend on technology. While we continue to view Zscaler's zero-trust security offerings as industry-leading, we expect elevated macroeconomic uncertainty to weigh down on the firm’s financials over the coming quarters. Zscaler’s shares fell 10% after hours. As a result, despite our fair value estimate revision, we think that the firm’s shares are trading at an attractive price for long-term investors willing to stomach the near-term volatility.