Worldwide spending on cybersecurity is expected to reach $103.1 billion in 2019, up 9.4% from 2018, according to IDC. Better still, more of that spending is going towards that cloud, particularly as more data moves away from on-premise towards cloud-based 24/7 and 365 access. These trends bode well for cybersecurity specialist Zscaler (ZS), which is set to report second-quarter 2019 earnings results after the closing bell Tuesday.
Zscaler, which has grown to become the biggest provider of cloud-based web security gateways, has seen its stock double from a year ago. But since reaching an all-time intraday high of $89.54 set on July 26, the stock sold off almost 30%.
The company's cloud platform enables customers to route data traffic to external data centers, where Zscaler houses its software tools. But investors have grown concerned over increased competition and the extent to which Zscaler's sales channels can continue to drive top-line growth. Last week rival Palo Alto Networks (PANW), while offering bullish guidance, boasted that its aggressive acquisitions would allow it to keep stealing market share from growing competition.
"Our belief is, as we see this cloud market go to potentially $1 trillion over the next five years, there is a huge opportunity for cloud security to play a relevant role in allowing these customers to make their cloud journey over the next three to five years," Palo Alto Networks CEO Nikesh Arora told investors. Arora said Zscaler is among the rivals Palo Alto is beating for large contracts. Can Zscaler respond on Tuesday?
In the three months that ended July, the San Jose, Calif.-based company is expected to earn 1 cent per share on revenue of $82.79 million. This compares to the year-ago quarter when the loss came to 1 cent per share on revenue of $56.17 million. For the full year, ending January, earnings of 18 cents per share would reverse a 23-cents loss of a year ago, while full-year revenue of $299.85 million would rise 57.7% year over year.
Customers who are migrating their data towards not only require greater processing power and real-time updates combine, but they also demand better protection. These characteristics are driving demand for products like Zscaler's software tools. Zscaler's cloud platform enables customers to route data traffic to external data centers. The company gets the bulk of its revenue from Zscaler Internet Access — its cloud-based replacement for on-premises web security gateways, or appliances that installed at internal data centers.
In the third quarter, not only did the company beat on both the top and bottom lines, revenue surged 61% year-over-year to $79.1 million. Calculated billings rose impressively by 55%, while deferred revenue increased 69% to $211.5 million. On Tuesday, investors will want to see whether Zscaler can improve on these numbers and issue upside guidance to reflect it can grow market share amid the burgeoning cybersecurity market.
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