Zscaler Inc: Cloud Security Stock On Fire, Up 275% Since March

Zscaler Inc Is Trumping the Market, But More Gains Coming

Zscaler Inc (NASDAQ:ZS) is an excellent cybersecurity stock that has been trouncing its peers and the broader market. Zscaler stock is up 48% year-over-year, 177% since the start of 2020, and 275% since the stock market crashed in March.

Zscaler stock has been bullish since the markets bottomed in March; by the second week of April, the stock had erased all of its pandemic-fueled sell-off. ZS stock has been on fire since late May, when the company reported very strong financial results for the third quarter of fiscal 2020. And it has been building on those gains since then.

Meanwhile, at the time of this writing, the First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) has climbed 20% year-over-year, 19% since January, and 72% since bottoming in March. The ETFMG Prime Cyber Security ETF (NYSE:HACK) has gone up 19% year-over-year, 17.5% year-to-date, and 65% since March.

ZS Stock Overview

Based in San Jose, California, Zscaler helps the world’s leading organizations securely transform their networks and applications for the mobile and cloud world. In fact, the company has the world’s largest cloud cybersecurity platform, 150 data centers, and users in 185 countries. (Source: “Home Page,” Zscaler Inc, last accessed July 31, 2020.)

ZScaler’s 100% cloud-delivered flagship services “Zscaler Internet Access” and “Zscaler Private Access” create secure connections between users and applications, regardless of device, location, or network. (Source: “Zscaler Reports Third Quarter Fiscal 2020 Financial Results,” Zscaler Inc, May 28, 2020.)

Every day, Zscaler secures 100 billion transactions, blocks 100 million cyber-threats, and provides 170,000 unique security updates. (Source: “Corporate Presentation June 2020,” Zscaler Inc, last accessed July 31, 2020.)

Zscaler is the company the corporate world turns to when it needs protection from cyber attacks. The company serves customers in a wide variety of industries, including airlines, communications, education, financial services, healthcare, manufacturing, retail, and technology.

Its more than 3,900 customers include:

• Over 400 members of the Forbes 2000
• Eight of the top 10 conglomerates
• Seven of the top 11 food retail companies
• Five of the top five household products and personal care companies
• Five of the top eight medical equipment and supplies companies
• Four of the top eight oil and gas operations
• Three of the top five diversified insurance firms

Chart courtesy of StockCharts.com

Q3 Revenue Up 40%, Deferred Revenue Up 42%

On May 28, Zscaler announced that its revenue for the third quarter of fiscal 2020 (ended April 30) increased 40% year-over-year to $110.5 million. Deferred revenue increased 42% to $300.8 million. (Source: Zscaler Inc, May 28, 2020, op. cit.)

Zscaler reported a third-quarter net loss of $19.3 million ($0.15 per share), compared to a net loss of $12.2 million ($0.10 per share) in the same period last year. The company also reported third-quarter adjusted net income of $9.0 million ($0.07 per share), up from $7.4 million ($0.05 per share) in the same period last year.

The company ended the third quarter with cash, cash equivalents, and short-term investments of $391.3 million.

During the quarter, Zscaler saw its private access traffic grow by more than 10 times, with its cloud security platform securing 100 billion transactions daily.

In April, Zscaler Inc acquired Cloudneeti Corporation, a cloud security posture management company. Subsequent to the end of the third quarter, Zscaler acquired Edgewise Networks, a company that secures application-to-application communications in data centers and public clouds.

Business Outlook

For the fourth quarter, Zscaler Inc expects to report total revenue of $117.0 to $119.0 million (up from $86.1 million in the fourth quarter of 2019) and adjusted earnings per share (EPS) of $0.02 to $0.03 (down from $0.07 in the fourth quarter of 2019).

For fiscal 2020, Zscaler expects total revenue of $422.0 to $424.0 million (up from $302.8 million in fiscal 2019) and adjusted EPS of $0.20 to $0.21 (down from $0.22 in fiscal 2020). (Sources: Ibid. and “Zscaler Reports Fourth Quarter and Fiscal 2019 Financial Results,” Zscaler Inc, September 10, 2019.)

Analyst Take

Zscaler stock is a great cloud security stock; the company continues to report strong revenue and billings growth.

With cybersecurity threats becoming more sophisticated, and with the growth of the mobile workforce, well-run cloud security companies like Zscaler Inc are expected to see their bottom lines flourish even further in the 5G frontier.