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Zscaler leads the unicorn charge of 2018 - here's what you need to know

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Zscaler will be the year's first "unicorn" IPO. The security software provider achieved a $1 billion valuation in 2015. TPG led the $110 million round at $8.97, with equity ratchets that kick in below $11.21. Zscaler is now scheduled to raise $110 million at a fully diluted market value of $1.4 billion and begin trading during the week of March 12 .

Fast Facts on Zscaler, the First Unicorn IPO of 2018
IssuerBusiness Deal SizeMarket Cap Price RangeShares Filed PricingDate TopBookrunners
Zscaler ( ZS )San Jose, CA $110M$1,360M $10 - $1210,000,000 Wk of03/12 Morgan StanleyGoldman Sachs
Provides a cloud-based network security service for enterprises.
View our IPO Profile on Zscaler . An enhanced profile is available for IPO Pro subscribers .

Zscaler checks the boxes of a hot tech IPO.

¤ Leading cybersecurity provider

¤ 50% growth, $150 million in sales, 80% gross margin

¤ Losses are under control

¤ Reasonable valuation

¤ 2017 software IPOs have outperformed

¤ Low float

Leading cybersecurity provider : Zscaler is a leading player in a multi-billion dollar industry. Its SaaS offering competes with top enterprise network security providers like Blue Coat (Symantec) and Forcepoint. Zscaler has a global offering (53% of sales are non-US) and its customers include of 200 of the Forbes Global 2000. It is worth highlighting the space's M&A, too: Symantec acquired Blue Coat (BLCT) in 2016 for $4.7 billion and Forcepoint (f/k/a Websense) was taken private in 2013 by Vista Equity Partners, before merging with Raytheon's cybersecurity segment in 2015.

50% growth, $150 million in sales, 80% gross margin : Zscaler has an attractive growth and gross margin profile at $150+ million in sales. Revenue growth accelerated to 53% in the most recent quarter, reaching $45 million. The company has roughly 3,000 enterprise customers (+14% YoY) and a 122% dollar-based net retention rate. Gross margin has steadily expanded to 81% in the MRQ.

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Losses are under control : With an accumulated deficit of $180 million, losses are a concern. During the 1H18, adjusted EBITDA loss doubled to $10 million. That said, Zscaler's losses are far better than several of its high-growth peers, and cash flow from operations was nearly breakeven in the most recent quarter. Post-IPO it will have $168 million in cash with no debt.

Reasonable valuation : At $11 per share, Zscaler has a fully diluted market value of $1.4 billion and an enterprise value of $1.2 billion. That's 7.7x LTM sales, a discount to peers like SailPoint Technologies ( SAIL ) and Okta (OKTA; 16.1x).

2017 software IPOs have outperformed : Almost every software IPO from 2017 has had impressive gains. The eleven IPOs average a return of 88% from their offer price, including strong returns from Zscaler peers like Okta (+128% from IPO) and SailPoint (+88%).

Low float : Led by Morgan Stanley and Goldman Sachs, the offering consists of 10 million shares, representing 8.7% of the company's basic market value (8.3% after $5 million of insider buying). Tech IPOs often limit the initial float, propping up demand.

The article Zscaler leads the unicorn charge of 2018 - here's what you need to know originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital, the Renaissance IPO ETF (symbol: IPO) or the Global IPO Fund (symbol: IPOSX) , may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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