Shares of cybersecurity firm Zscaler (ZS) sank in after-hours trading after the company reported earnings for its first quarter of Fiscal Year 2025, which was followed by soft guidance. Earnings per share came in at $0.77, which beat analysts’ consensus estimate of $0.63 per share.
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Sales increased by 26% year-over-year, with revenue hitting $628 million. This beat analysts’ expectations of $605.51 million. In addition, free cash flow increased to $291.9 million versus the $224.7 million seen in Q1 2024. The free cash flow margin also climbed from 45% to 46% during the same time period.
According to Zscaler’s CEO, Jay Chaudhry, these strong results were driven by solid sales efforts and increased customer interest, with all key performance targets exceeding expectations. He explained that combining “Zero Trust” (a security model that assumes no user or device should be trusted by default) with AI is creating exciting new business opportunities. The company is confident it can take advantage of these opportunities thanks to its expanding platform and wide range of services.
2025 Outlook
Looking forward, management now expects revenue and adjusted earnings per share for Q2 2025 to be in the ranges of $633 million to $635 million (consensus: $633.1 million) and $0.68 to $0.69 (consensus: $0.68), respectively.
For FY 2025, these figures jump to a range of $2.623 billion to $2.643 billion (consensus: $2.612 billion) for revenue and $2.94 to $2.99 (consensus: $2.87) for EPS.
Now, some investors might be wondering why ZS is falling after Q1 results and guidance exceeded expectations? Well, one potential reason could be that since the stock rallied over 14% in the past month heading into earnings, investors could have already priced in better-than-expected results, which led to them taking profits when the news was actually released.
Is ZS Stock a Good Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on ZS stock based on 25 Buys, six Holds, and zero Sells assigned in the past three months. After a 6% year-to-date decline, the average ZS price target of $232.04 per share implies 10.8% upside potential. However, it’s worth noting that estimates will likely change following today’s earnings report.
