Zscaler (ZS) AI Stock Analysis

• Market Cap: $29.74B
• Dividend Yield: N/A
• Average Volume (3M): 1.58M
• Price to Earnings (P/E): ―
• Beta (1Y): 1.96
• Revenue Growth: 30.77%
• EPS Growth: 79.05%
• Country: US
• Employees: 7,348
• Sector: Technology
• Sector Strength: 48
• Industry: Software
• EPS (TTM): -0.24
• Shares Outstanding: 153,438,630
• 10 Day Avg. Volume: 1,806,482
• 30 Day Avg. Volume: 1,577,726
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): 12.60
• Price to Cash Flow (P/CF): 21.90
• P/FCF Ratio: 24.50
• Enterprise Value/Market Cap: N/A
• Enterprise Value/Revenue: N/A
• Enterprise Value/Gross Profit: N/A
• Enterprise Value/Ebitda: N/A
• 1Y Price Target: $232.73
• Price Target Upside: 20.08% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 15

Zscaler's strong financial performance, characterized by impressive revenue growth and effective cash flow management, is a major strength. The positive technical indicators suggest upward momentum, although caution is necessary due to high valuation metrics. The positive outlook from the recent earnings call reinforces the company's strategic growth focus, particularly in AI and federal markets. Despite challenges such as customer deal scrutiny and leadership transitions, the overall growth potential justifies a favorable score.

Positive Factors

Financial Performance

The company is expected to achieve mid-to-high-teens billings growth, suggesting an optimistic outlook for its financial performance.

Market Position

ZS is benefiting from Zero Trust demand, with larger enterprises accelerating multi-year commitments to ZS’s security transformation bundles.

Negative Factors

Market Competition

There are concerns over the company's long-term positioning due to increased competition in SASE, which could lead to share loss and pricing pressure.

Zscaler Business Overview & Revenue Model

Company Description

Zscaler, Inc. is a global cloud-based information security company providing Internet security, web security, next-generation firewall, sandboxing, SSL inspection, antivirus, and other security services. Headquartered in San Jose, California, Zscaler operates primarily in the cybersecurity sector, delivering a comprehensive suite of services through its Security-as-a-Service platform, designed to protect enterprises from cyber threats and data loss, while ensuring secure internet access for users across diverse locations and devices.

How the Company Makes Money

Zscaler makes money primarily through a subscription-based revenue model. The company offers its cybersecurity services via annual or multi-year subscriptions, which provide clients access to its cloud-native platform. Key revenue streams include subscriptions to its core offerings such as Zscaler Internet Access (ZIA) and Zscaler Private Access (ZPA), providing secure internet and application access respectively. Zscaler's earnings are further bolstered by its ability to scale services according to the needs of different enterprise sizes, ranging from small businesses to large multinational corporations. Strategic partnerships with global technology leaders and service integrators also enhance its market reach and contribute to revenue growth. Additionally, the company invests in ongoing innovation and enhancements to its platform to meet evolving cybersecurity demands, thereby attracting and retaining a diverse client base.

Zscaler Financial Statement Overview

Summary

Zscaler displays robust revenue growth and effective cash flow management, positioning it well within the software industry. Despite negative net income, operational efficiencies are improving, and the balance sheet reflects a sound financial structure. The company faces challenges in achieving profitability but maintains strong growth potential.

Income Statement

Zscaler demonstrates strong revenue growth with a remarkable increase over the years, notably from $431 million in 2020 to $2.3 billion TTM, reflecting a robust growth trajectory. Gross profit margins remain high, consistent with the software industry's norms, although net profit margins are negative due to continued losses. EBITDA margin improvement indicates operational efficiencies, albeit EBIT remains negative.

Balance Sheet

The balance sheet shows increasing stockholders' equity, a positive sign, with a stable equity ratio. The debt-to-equity ratio is moderate, indicating manageable leverage levels. However, the company has consistently reported negative net income, impacting return on equity negatively.

Cash Flow

Zscaler's cash flow performance is strong, with substantial growth in free cash flow, showcasing effective cash management. The operating cash flow to net income ratio is positive, highlighting good cash conversion, despite net losses. The company’s ability to generate free cash flow is a significant strength.

Breakdown
TTM	Jul 2024	Jul 2023	Jul 2022	Jul 2021	Jul 2020
Income Statement		Total Revenue
2.30B	―	―	―	―	―
	Gross Profit
1.79B	1.69B	1.25B	848.66M	673.10M	335.54M
	EBIT
-109.11M	-121.48M	-234.62M	-85.15M	-57.49M	-113.96M
	EBITDA
93.53M	110.38M	-74.22M	-277.58M	-167.36M	-86.83M
	Net Income Common Stockholders
-36.27M	-57.71M	-202.34M	-390.28M	-262.03M	-115.12M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
―	―	―	―	―	―
	Total Assets
4.70B	4.70B	3.61B	2.83B	2.26B	1.83B
	Total Debt
1.24B	1.24B	1.21B	1.05B	2.19B	905.24M
	Net Debt
-1.17B	-1.17B	-889.69M	-685.62M	1.92B	-465.33M
	Total Liabilities
3.43B	3.43B	2.88B	2.26B	1.73B	1.35B
	Stockholders Equity
―	―	―	―	―	―
Cash Flow		Free Cash Flow
691.57M	635.26M	365.15M	252.61M	153.87M	36.23M
	Operating Cash Flow
850.38M	779.85M	462.34M	321.91M	202.03M	79.30M
	Investing Cash Flow
-722.29M	―	―	―	―	―
	Financing Cash Flow
63.84M	―	―	―	―	―

Zscaler Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 193.82
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Positive
• MACD: Positive
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ZS, the sentiment is Negative. The current price of 193.82 is below the 20-day moving average (MA) of 203.64, below the 50-day MA of 195.31, and above the 200-day MA of 188.45, indicating a neutral trend. The MACD of -1.67 indicates Positive momentum. The RSI at 44.45 is Neutral, neither overbought nor oversold. The STOCH value of 21.61 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ZS.

Zscaler Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
PANW	80 Outperform	$121.61B	104.16	19.68%	―	13.86%	-46.44%
ZS	80 Outperform	$29.74B	―	-2.54%	―	30.77%	79.05%
FTNT	79 Outperform	$81.88B	47.12	116.83%	―	12.27%	54.69%
CRWD	78 Outperform	$96.10B	770.46	4.14%	―	31.35%	―
OKTA	68 Neutral	$14.94B	1,886.93	78.42%	―	15.33%	―
NET	67 Neutral	$49.31B	―	-398.06%	―	28.76%	58.13%
Sector *	59 Neutral	$22.39B	11.53	-18.05%	2.31%	5.00%	-25.89%

Zscaler Corporate Events

Zscaler 2024 Meeting: Equity Plan Amendment and Elections

On January 10, 2025, during Zscaler’s 2024 Annual Meeting of Stockholders, the company approved an amendment to its FY2018 Equity Incentive Plan, eliminating its original 10-year term. This amendment allows for more flexible long-term incentive awards, including stock options and restricted stock, subject to the discretion of Zscaler’s compensation committee. The meeting also saw the election of Class I directors and the ratification of PricewaterhouseCoopers LLP as the independent auditor for fiscal year 2025, as well as approval of executive officer compensation.