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Zscaler Inc ZS

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Morningstar’s Analysis

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Zscaler Accelerates Growth Yet Again in Its Second Quarter; Raising FVE to $165

Mark Cash Senior Equity Analyst

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.

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Company Profile

Business Description

Zscaler is a security-as-a-service firm that offers its customers cloud-delivered solutions for protecting user devices and data. The firm leverages its position in 150 colocation data centers to deliver traditionally appliance-based security functionality, such as firewalls and sandboxes, as a completely cloud-native platform. The firm focuses on large enterprise customers and offers two primary product suites: Zscaler Internet Access, which securely connects users to externally managed application and websites (such as Salesforce and Google), and Zscaler Private Access, which securely connects users to internally managed applications. Both product suites encompass a broad gamut of capabilities situated across the traditional security stack.

120 Holger Way
San Jose, CA, 95134
T +1 408 533-0288
Sector Technology
Industry Software - Infrastructure
Most Recent Earnings Jan 31, 2021
Fiscal Year End Jul 31, 2021
Stock Type Speculative Growth
Employees 2,020