Analyst Note
| Mark Cash |Narrow-moat Zscaler breezed by our expectations for its second quarter as revenue growth accelerated to 55% year over year. Billings expanded by a resounding 71% year over year and gives us even more confidence in Zscaler’s pipeline strength. While the rise in organizations using cloud-based resources like Office 365 and being able to go directly to those resources via Zscaler may have been the initial catalyst for the company, two other recent sparks are important for the long term. In our view, distributed working environments are causing enterprises to upgrade their infrastructure to Zscaler’s solutions and the SolarWinds breach may be even more impactful in the long run. We expect organizations to upgrade their security posture to zero-trust architectures, which is in line with Zscaler’s core Internet access and private access offerings. With a higher adoption rate expected for Zscaler’s more established products alongside a large potential for the burgeoning workload protection and digital experience offerings, we are raising our fair value estimate to $165 from $150. We still view shares overvalued for this cybersecurity pioneer.