Zscaler (ZS) Q4 Earnings: What to Expect

Close-up of the Zscaler logo at their headquarters in Palo Alto, California
Credit: Sundry Photography / stock.adobe.com

Software stocks have powered the markets higher over the past couple of weeks. Among the biggest gainers have been cybersecurity specialists such as Zscaler (ZS) which has become popular amid the recent surge in cyberattacks. Its shares have surged almost 20% in thirty days, besting the 2% rise in the S%P 500 index. But can it continue?

Zscaler is set to report fourth quarter fiscal 2021 earnings results after the closing bell Thursday. When assessing the company's growth profile, you would be hard-pressed to find a faster-growing cybersecurity stock, particularly as more and more consumer data goes online and into the cloud. And the industry is poised to remain one of the hottest sectors in tech in the next few years as corporations scramble to combat not only rising hacker sophistication, but also implement defenses needed to support their digital expansion.

Currently worth $200 billion, the cybersecurity market is projected to grow to approximately a 10% compound annual growth rate within the decade. And given the better-than-expected results just released from Palo Alto Networks (PANW), which included upside revenue guidance, there is increased security demand not only for remotely-connected devices, but also a surge in virtual private networks that allow employees to connect remotely.

These trends bode well for Zscaler, which has grown to become the largest provider of cloud-based web security gateway on the market. The company's cloud platform enables customers to route data traffic to external data centers where Zscaler houses its software tools. Aside from its strong product portfolio that enables the work-from-home and office hybrid environment, Zscaler’s strength can also be displayed within its exceptional gross margins and cash generation capability. But can the company’s earnings results on Thursday, along with its 2022 outlook, propel the stock higher?

In the three months that ended July, the San Jose, Calif.-based company is expected to earn 9 cents per share on revenue of $186.82 million. This compares to the year-ago quarter when earnings came to 5 cents per share on revenue of $125.89 million. For the full year, earnings of 47 cents per share would rise 95% year over year, while full-year revenue of $663.34 million would rise 53.8% year over year.

Without question, the need for enhanced security tools will remain is poised to remain a key priority for most organizations. Worldwide cybersecurity spending is expected to surpass $150 billion by 2023 (up from $100 billion in 2019), according to research firm IDC. While this growth forecast suggests the addressable market is getting bigger, the question is, which company can seize more of this market opportunity? More aptly, can Zscaler can separate itself from the likes of CrowdStrike (CRWD), Palo Alto Networks, Cisco (CSCO), among others?

To date, its impressive growth rate has shown no noticeable decline. In the third quarter, revenue surged 60% year over year to $176.4 million, topping consensus of $157 million. Q3 calculated billings — a closely-followed metric — jumped 71% to $225 million. Boasting 2,000 companies on the Forbes Global list, its Q3 adjusted profit was also strong, coming at 15 cents per share, above the 7 cents analysts were looking for.

Notably, the company's deferred revenue, which signals the strength of underlying demand, surged 65% year over year to $495 million. However, for the stock to maintain its strong uptrend, analysts on Thursday will want Zscaler to lay out its plans for fighting off competitors and deliver long-term profits.

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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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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