Zscaler Earnings: Large Customers Drive Revenue Strength While Margins Surge

We raise our fair value estimate to $183 from $170 for narrow-moat Zscaler after the firm finished fiscal 2023 with strong financial results and guidance for the upcoming year. While the macroeconomic environment remains uncertain, we were impressed by Zscaler’s ability to close a record number of deals with an annual contract value of more than $1 million. We attribute this strong performance upmarket to the impressive value proposition Zscaler’s platform offers its customers, especially as they seek cloud-native security vendors to manage their increasingly complex security needs. As we look ahead, we expect Zscaler’s products to remain top-of-mind for companies and so forecast robust growth for the firm over the next decade as investments in cloud-native security solutions ramp up. The firm’s shares traded slightly down after the earnings report, and we view them as marginally undervalued.