On Wednesday, Mizuho Securities adjusted its outlook on Zscaler Inc (NASDAQ:ZS), a company specializing in cloud-based information security, by reducing its price target to $195 from $210. The firm has decided to maintain a Neutral rating on the stock. This decision comes after Zscaler reported a total billings growth of 27%, surpassing the guidance of 24%. The company also highlighted a record level of new and upsell business activities and noted that its AI-analytics solutions added three percentage points to the growth figure.
Despite the strong performance in billings growth, Mizuho expressed caution regarding Zscaler's forward-looking projections. The company's guidance for fiscal year 2025 billings was merely in line with expectations, and the revenue guidance was slightly below anticipations. Management is anticipating a weaker first half in billings than what analysts had projected. These projections have influenced Mizuho's stance on the stock.
Mizuho's cautious outlook is further justified by the broader market context in which Zscaler operates. While acknowledging that Zscaler is well-positioned within the Secure Access Service Edge (SASE) market, the firm expressed concerns about the company's ability to consistently secure large, transformative deals. This skepticism is amplified by the current macroeconomic environment and a competitive market landscape for SASE offerings.
Adding to the concerns, Mizuho noted the recent departure of Zscaler's Chief Operating Officer Dali Rajic, along with a number of sales personnel. This turnover is perceived as an increased risk to the company's near-term execution capabilities. The combination of these factors has led to a modest decrease in the price target set by Mizuho for Zscaler's shares.
In other recent news, Zscaler, a leader in cloud security, reported a robust end to the fiscal year 2024 with a 27% increase in billings, surpassing expectations and achieving over $2.5 billion in Annual Recurring Revenue (ARR). However, the company's guidance for fiscal year 2025 billings indicates a 19% year-over-year growth at the midpoint, amounting to $3.123 billion, which aligns with the FactSet consensus estimate.
This projection falls short of market expectations, typically expecting a higher margin of upside. Cantor Fitzgerald, UBS, and Wells Fargo (NYSE:WFC) have adjusted their price targets for Zscaler, while maintaining their respective ratings.
Analysts from Jefferies and JPMorgan (NYSE:JPM) also revised their price targets for Zscaler, maintaining a positive outlook on the company's long-term market position and growth potential. Despite the projected slowdown in billings growth for the first half of FY2025, these analysts expressed confidence in Zscaler's ability to navigate the challenging macroeconomic environment.
Zscaler's collaborations with Google (NASDAQ:GOOGL) and NVIDIA (NASDAQ:NVDA) to enhance security measures and integrate advanced AI technologies were also noted. The company expects a rebound in billings growth in the second half of the fiscal year 2025, projecting a 23% year-over-year increase.
InvestingPro Insights
As Zscaler Inc navigates a challenging economic environment, the latest data from InvestingPro provides a nuanced view of the company's financial health and market position. With a market capitalization of $29.2 billion, Zscaler is a significant player in the cloud-based information security space. Analysts are optimistic about the company's future, expecting net income growth and sales to rise in the current year, which aligns with the company's recent report of a billings growth surge. This anticipation is supported by Zscaler's impressive gross profit margin of 77.94% over the last twelve months as of Q3 2024, which underscores the company's strong pricing power and operational efficiency.
Despite not being profitable over the last twelve months, Zscaler's liquid assets exceed its short-term obligations, suggesting a robust liquidity position that could weather potential market downturns. However, investors should note the company's high valuation multiples, with a Price / Book ratio of 26.71 as of Q3 2024, which may signal a premium price for the stock relative to its book value. Additionally, Zscaler does not pay a dividend, which may be a consideration for income-focused investors.
For those interested in a deeper analysis, there are 13 additional InvestingPro Tips available, which provide further insights into Zscaler's performance and market outlook. Find these tips at: https://www.investing.com/pro/ZS
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