On Wednesday, UBS adjusted its outlook on Zscaler (NASDAQ:ZS) shares, reducing the price target to $250 from the previous $270, while sustaining a Buy rating on the stock.
The firm's assessment followed Zscaler's fourth-quarter results, which showcased a 27% increase in billings and exceeded expectations in both operating margin (OpM) and free cash flow (FCF).
Despite these robust outcomes, the perspective on the fiscal year 2025 (FY25) billings growth forecast—projected at 19%-20%—is perceived with a hint of caution by investors. This outlook represents a subtle downward adjustment from the prior quarter's guidance of approximately 20%, although the dollar amount remains unchanged.
The analyst expressed confusion regarding the first-quarter billings guidance, which anticipates roughly 11% year-over-year growth, marking a significant 44% quarter-over-quarter decline—the largest historical drop by 4 percentage points.
Management attributes this forecast to the increasingly second-half weighted nature of the business, noting that bookings in the first half of both fiscal years 2023 and 2024 were weaker and are now contributing less to scheduled billings for FY25.
This pattern is reportedly unchanged from 90 days ago, leading to speculation that management's expectations for first-half non-contracted billings—including new business, upsells, and renewals—may be growing more conservative.
Despite these concerns, UBS remains positive about Zscaler's core business narrative. The firm believes that the guidance for FY25 billings, which aligns with the street consensus on a dollar basis, incorporates a significant degree of caution. Zscaler's performance and outlook continue to attract attention as the company navigates through its fiscal projections and market expectations.
In other recent news, Zscaler has been in the spotlight following its fiscal fourth-quarter earnings report. The company exceeded expectations with a 27% year-over-year billings growth, surpassing a significant milestone by achieving over $2.5 billion in Annual Recurring Revenue (ARR).
However, its guidance for the first half of fiscal year 2025, projecting a 13% growth, has sparked concerns among investors. Despite the projected slowdown in billings growth for the first half of FY2025, analysts from Wells Fargo (NYSE:WFC), Jefferies, JPMorgan (NYSE:JPM), and BTIG expressed confidence in Zscaler's long-term market position and growth potential.
Wells Fargo reduced its price target for Zscaler to $180, maintaining an Equal Weight rating. Jefferies cut its target to $225, while maintaining a Buy rating. JPMorgan trimmed its target to $220, yet maintained an Overweight rating, and BTIG also lowered its target to $205 but kept a Buy rating on the stock.
These recent developments in Zscaler's financial performance and market position have been highlighted by analysts' assessments. The company's collaborations with Google (NASDAQ:GOOGL) and NVIDIA (NASDAQ:NVDA) to enhance security measures and integrate advanced AI technologies were also noted. These are the recent developments for Zscaler.
InvestingPro Insights
Following UBS's recent price target adjustment for Zscaler, insights from InvestingPro provide a deeper understanding of the company's financial health and market performance. With an impressive gross profit margin of 77.94% over the last twelve months as of Q3 2024, Zscaler demonstrates its ability to maintain profitability in its operations. Additionally, the company has managed to keep a moderate level of debt, which is a positive sign for investors looking for stability.
Analysts remain optimistic, as they predict sales growth in the current year and expect net income to grow. These projections are supported by a strong return over the last month of 13.96%, indicating positive short-term market sentiment. For those seeking a comprehensive analysis, InvestingPro offers additional tips, including insights on Zscaler's valuation multiples and profitability forecasts for the year. With the company not paying dividends, investors are likely to focus on these growth and profitability metrics when assessing Zscaler's potential.
InvestingPro's data further reveals a market capitalization of $29.2 billion, emphasizing the scale of Zscaler's operations within its industry. While the company is trading at a high Price/Book multiple of 26.71, suggesting a premium valuation, the anticipated growth may justify this for growth-oriented investors. For a deeper dive into Zscaler's financials and to access more InvestingPro Tips, investors can refer to https://www.investing.com/pro/ZS, where additional insights are available to guide investment decisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.