Zscaler's Q1 Results: Analyst Reactions and Concerns

Zscaler Inc. shares faced a significant drop in early trading on Tuesday, despite the company releasing positive results for its fiscal first quarter.

These results came during a lively earnings season, but concerns arose among several analysts regarding the future direction of the company, particularly following the recent announcement of the retirement of CFO Remo Canessa.

Analyst Ratings and Price Targets

Here's a summary of key insights from analysts:

• Scotiabank's analyst, Patrick Colville, maintained a Sector Outperform rating on Zscaler, increasing the price target from $195 to $205.
• Trevor Walsh from JMP Securities kept a Market Outperform rating but reduced his price target from $270 to $240.
• Keith Bachman of BMO Capital Markets reiterated an Outperform rating while raising the price target from $197 to $222.
• Ittai Kidron from Oppenheimer retained an Outperform Buy rating and increased the price target from $230 to $250.
• Matthew Hedberg of RBC Capital Markets also assigned an Outperform rating, maintaining a price target of $230.
• Analyst Adam Borg from Stifel reiterated a Buy rating and set a target price of $235.
• Mike Cikos from Needham initiated coverage with a Buy rating and a target of $240.
• John DiFucci of Guggenheim Securities maintained a Neutral rating.

Financial Performance and Analyst Commentary

Colville highlighted that Zscaler's billings rose 13% year-on-year in the fiscal first quarter. Although the fiscal 2025 guidance was considered disappointing, he noted that Canessa's retirement adds uncertainty regarding the company's commitment to its billings targets for the future. Nonetheless, he maintained confidence in Zscaler's medium-term potential as a leading player in the SASE market.

Meanwhile, Walsh emphasized that Zscaler's quarterly metrics were strong overall. He pointed out that the non-GAAP earnings of 77 cents per share surpassed the consensus estimate of 63 cents, and revenues of $628 million exceeded the $606 million consensus. However, the CFO's retirement loomed large over these positive results.

Bachman observed a modest beat in billings for the quarter, though he noted a slowdown in billings growth from the previous quarter's 27%. The company’s remaining performance obligations (RPO) stood at $4.41 billion, reflecting a 26% year-on-year increase.

Kidron pointed out that the solid results were fueled by increasing customer demand and improved sales productivity. He expressed optimism about Zscaler's prospects in fiscal 2026 as its sales approach matures, but also acknowledged that the guidance for the year remains unchanged, providing a 'wait-and-see' sentiment among investors.

According to Hedberg, Zscaler's comprehensive results led to raised guidance across the board, while Borg noted that ongoing demand for the company's expanding zero-trust solutions remains strong, even as investors await more clarity on the new CFO's direction.

Cikos discussed how Zscaler had surpassed expectations, driven primarily by significant year-on-year growth in its billings. He remarked on the company's prudent approach to guidance-setting, which might lead them to outperform in the coming months.

On the other hand, DiFucci cautioned about a notable slowdown in business momentum, as billings growth had halved compared to prior periods. He predicted that Zscaler may still achieve decent growth if recent contract billing trends continue positively.

Stock Performance

Despite the positive earnings results, Zscaler's stock saw a decline of 4.10%, trading at $199.96 at the time of reporting.

Investors and analysts alike will likely continue to monitor the situation closely, especially with the leadership change adding an element of uncertainty to the company's operations moving forward.

Zscaler, Earnings, CFO