Cyber security vendor Zscaler (ZS) is well placed to emerge a winner from government efficiency drives in Washington, according to the company’s founder and CEO, Jay Chaudhry. Speaking on an earnings call with analysts after the company’s latest quarterly earnings update, he argued ZS was in a better position than a lot of other companies to benefit from efforts to cut spending at federal government departments, which is being led by Elon Musk’s new Department of Government Efficiency, or DOGE.
Referring to “highly publicized” efficiency measures taking place under the new administration, he pointed to the firm being able to help agencies simplify security. Specifically, Chaudhry believes Zscaler has a key advantage over companies that focus on network security hardware as it is focused on replacing a lot of legacy security infrastructure such as firewalls.
“Incumbent security vendors cannot save costs for a government, but Zscaler can and does by eliminating multiple legacy security products, including firewalls, VPNs, NACs, DLP, VDI, and more,” he said.
ZS Targets “Legacy” Systems
A VPN, or Virtual Private Network, is a technology that establishes a secure, encrypted connection over the internet between a user’s device and a private network. NAC refers to Network Access Control, a security solution that enforces policies on devices trying to access a network, ensuring only authorized and compliant devices can connect. DLP refers to Data Loss Prevention security tools, while VDI is Virtual Desktop Infrastructure, a technology that hosts desktop environments on a centralized server and delivers them to end-users over a network.
Increasingly companies and government departments are looking to replace these with newer systems based on a “zero trust architecture,” as offered by Zcaler. These models assume no user can be trusted by default, reducing lateral threats. For instance, instead of a VPN and NAC, a Zero Trust Network Access (ZTNA) provides user-specific access rather than full network access and focuses on verifying identity and context rather than controlling network access alone.
The CEO went on to say that Zscaler was present at “nearly all” the cabinet level federal agencies and had “significant upsell opportunities,” meaning it was “well-positioned to benefit from the government’s efficiency measures.”
Chaudhry made the remarks after ZS posted earnings that beat Wall Street expectations, with revenues up 23% to $2.7 billion and operating profit rising 36%.
While DOGE has been pushing for efficiency, the topic of cybersecurity is one that cuts across its functions, with several experts concerned about officials within the department having too much access to IT systems, posing a potential risk to hackers and bad actors gaining access to government data.
Is ZS Stock a Good Buy?
On Wall Street, analysts have a Strong Buy consensus rating on ZS stock based on 13 Buys, three Holds, and zero Sells assigned in the past three months. The average ZS price target of $233.56per share implies 19% upside potential. However, it’s worth noting that estimates may still change following the earnings report.
