On Friday, BTIG adjusted its price target for Zscaler (NASDAQ:ZS) shares, lowering it to $220 from the previous $258, while maintaining a Buy rating on the stock.
The firm's analysis followed Zscaler's release of its fiscal third quarter results for April, which surpassed expectations and led to an improved forecast for fiscal year 2024. Zscaler reported billings of $628 million, marking a 30% year-over-year increase, which was notably higher than both BTIG's and Wall Street's estimates of $584 million and 21% growth, respectively.
The company also demonstrated a significant overperformance in operating income and free cash flow (FCF) compared to street estimates.
The updated guidance for fiscal 2024 suggests billings could reach approximately $2,604.5 million, reflecting a 28% growth year-over-year. This forecast is an uptick from BTIG's prior estimate of $2,567 million and the street's $2,561 million.
Despite a backdrop of general investor pessimism towards Zscaler before the earnings report, due to concerns such as a potential economic downturn impacting the company, weak software sector earnings, and fears over increasing competition in the Secure Service Edge (SSE (LON:SSE)) market, Zscaler's results have appeared to alleviate some of these fears.
The acceleration of billings growth to 30% in the third quarter, from 27% in the second quarter, indicates that competition may not be impacting Zscaler's enterprise target market as much as bears had anticipated.
The positive performance in the third quarter also eases the pressure for the fourth quarter's performance and provides some reassurance that the street's forecasts for fiscal year 2025 could potentially be surpassed.
Zscaler's management has not addressed all investor concerns, but the current results and guidance offer a more optimistic view of the company's ability to meet or exceed expectations, even if the initial outlook for the following year is conservative.
InvestingPro Insights
As BTIG revises its outlook on Zscaler, investors may also consider the latest data and insights from InvestingPro. Zscaler's impressive gross profit margin of 77.55% in the last twelve months as of Q2 2024 aligns with the company's strong performance in its recent earnings report. Despite a challenging macroeconomic environment, Zscaler's revenue growth remains robust, with a 40.62% increase year-over-year. Additionally, the company's ability to hold more cash than debt on its balance sheet is a positive sign of financial health, which is particularly reassuring given the current market skepticism surrounding the tech sector.
InvestingPro Tips suggest that Zscaler's net income is expected to grow this year, and analysts predict the company will be profitable this year. These insights may provide investors with confidence in the company's future performance. For those looking to delve deeper into Zscaler's financials and market position, InvestingPro offers additional tips. There are 11 more InvestingPro Tips available, which can be accessed at https://www.investing.com/pro/ZS. To get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, use the coupon code PRONEWS24.
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