On Wednesday, Oppenheimer adjusted its outlook on Zscaler (NASDAQ:ZS), reducing the price target to $230 from the previous $260, while sustaining an Outperform rating on the stock. This revision follows Zscaler's announcement of robust fourth-quarter fiscal year 2024 results, which surpassed estimates due to strong execution and greater than anticipated go-to-market (GTM) productivity.
The cybersecurity firm reported a record quarter for new and upsell billings and noted an increasing contribution from emerging products, which accounted for 22% of new business in fiscal year 2024. Despite these strong results, the company's forecast for fiscal year 2025 billings suggests a slower pace in the first half of the year, with expectations of a pickup in the latter half.
Oppenheimer attributes the cautious billings outlook for the first half of fiscal year 2025 to previous macroeconomic impacts, which have caused billings to become more concentrated in the second half of the fiscal year. The firm does not see this as indicative of issues related to competition or demand.
Looking forward, Oppenheimer anticipates an attractive setup for fiscal year 2025, with potential for upside as sales productivity increases and new products continue to gain traction throughout the year. Following the after-hours market reaction to the news, the firm suggests that the current pullback in Zscaler's stock price presents a buying opportunity for investors.
The revised price target and maintained Outperform rating reflect Oppenheimer's expectations for Zscaler's continued growth and the successful integration of its new products into the market. The firm has adjusted its estimates to align with the company's results and guidance while reiterating confidence in Zscaler's performance trajectory.
InvestingPro Insights
In light of Oppenheimer's recent adjustments to Zscaler's outlook, incorporating real-time data and insights from InvestingPro can provide additional context for investors. The company's market capitalization stands at a robust $29.2 billion, reflecting its significant presence in the cybersecurity sector. Despite a negative P/E ratio, indicating that the company is not currently profitable, Zscaler has demonstrated impressive revenue growth of over 37% in the last twelve months as of Q3 2024. This growth is underpinned by a strong gross profit margin of nearly 78%, suggesting efficient operations and cost control.
InvestingPro Tips further enrich our understanding of Zscaler's financial health and future prospects. Analysts predict that the company will be profitable this year, with net income expected to grow. Additionally, Zscaler's liquid assets exceed its short-term obligations, indicating a solid liquidity position which is crucial for sustaining operations and investing in growth opportunities. It's worth noting that Zscaler does not pay dividends, which may be a consideration for income-focused investors. For those interested in a deeper dive, InvestingPro offers several additional tips on Zscaler that can be found at https://www.investing.com/pro/ZS.
The combination of strong sales growth expectations, healthy gross profit margins, and a favorable liquidity position aligns with Oppenheimer's optimistic outlook for Zscaler. The company's ability to integrate new products successfully into the market could be a driving force behind the anticipated profitability and continued growth.
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