On Tuesday, Evercore ISI maintained its Outperform rating and $245.00 price target for Zscaler (NASDAQ:ZS), despite the company's CFO, Remo Canessa, announcing his retirement. The firm addressed the initial after-hours stock sell-off, attributing it to a cautious outlook and the news of the CFO's departure.
Currently trading at $208.51, InvestingPro analysis suggests the stock is trading above its Fair Value, with analyst targets ranging from $177 to $270. The analyst noted that while the first-quarter performance was solid, with most metrics aligning with expectations, there were concerns about the slower-than-expected progress in the go-to-market (GTM) strategy shift, which has surpassed a year in implementation.
The management of Zscaler remains optimistic about the second half of the fiscal year, expecting scheduled billings to grow by 23% and unscheduled billings to maintain a growth rate above 20% each quarter through FY25. This confidence is supported by the company's strong financial performance, with revenue growing at 34.07% and maintaining impressive gross profit margins of 78.08%.
The analyst highlighted the company's robust pipeline and deal quality, along with an unchanged win rate. The expectation is that newer sales representatives will increasingly contribute to the company's performance in the latter half of the year.
For the second quarter, Zscaler's billing guidance is approximately $720 million, which is slightly below the consensus estimate of $725 million. However, revenue and operating margins are projected to meet expectations. The analyst anticipates a potential 4.5% beat in revenue, based on historical patterns, suggesting that actual revenue growth could be closer to 25%. Additionally, the company has raised its full-year revenue growth forecast from 20.5% to 21.5% and billing growth by 0.5% to 19.5%.
Regarding customer metrics, Zscaler reported an increase in clients with an annual recurring revenue (ARR) exceeding $5 million, reaching 65 compared to 60 in the previous quarter. The number of customers with ARR above $100,000 and $1 million also grew year-over-year, although net new sequential additions declined.
InvestingPro data reveals several positive indicators for the company, including expected net income growth and moderate debt levels. Subscribers can access 8 additional ProTips and comprehensive financial analysis through the Pro Research Report. The Net Retention Rate (NRR) saw a slight decrease to 114% from 115%, which management attributes to the signing of larger, multi-product deals. The company has also seen continued success in the public sector, with 14 of the 15 cabinet-level agencies now using its services.
The retirement of CFO Remo Canessa is significant, as he is well-regarded among investors. He will remain in his role until a successor is found, ensuring a smooth transition and continuity in the company's financial leadership. With a market capitalization of $31.99 billion and an overall Financial Health Score of "GOOD" according to InvestingPro, the company appears well-positioned to manage this transition effectively.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.