To The Moon

$Zscaler Inc.(ZS)$ will be reporting their earnings result for second-quarter fiscal 2025. ZS has anticipated the revenues to be between $633 million and $635 million.

The ZS fiscal second-quarter revenues is pegged at $634.1 million, indicating year-over-year growth of 20.78%, according to Zacks consensus estimate.

ZS expects non-GAAP earnings per share in the band of 68-69 cents. The consensus estimate for earnings per share is expected at 69 cents which represent a year-over-year decline of 9.2%.

Zscaler (ZS) Last Positive Earnings Call Give -9.46% Change

ZS have a positive earnings call on 02 Dec 2024 but the share price saw a -9.46% change. The earnings call was predominantly positive, marked by strong revenue growth, record profitability, and significant progress in AI adoption and federal market expansion.

Despite some challenges, such as customer scrutiny on large deals and slight pressure on gross margins, the overall outlook remains robust with promising growth in emerging products.

Zscaler (ZS) Guidance On Emerging Products Growth

During the Zscaler Q1 2025 earnings call, the company highlighted several key metrics that underscored its strong performance and future outlook. Revenue for the quarter rose by 26% year-over-year, driven by a 30% increase in bookings and robust customer demand for its Zero Trust Exchange platform and AI solutions. The company reported a billings growth of 13%, significantly outperforming the average growth rate of traditional network security vendors by over 10 percentage points. Operating profit surged by 50% year-over-year, reaching new records with a 21% operating margin and a 46% free cash flow margin. Zscaler's strategic focus on AI innovations and Zero Trust security has positioned it among the top SaaS companies, achieving a "rule of 70" in terms of combined revenue growth and free cash flow margin.

Additionally, the company expanded its customer base, with over 35% of Global 2000 and about 45% of Fortune 500 companies now secured by Zscaler. The call also revealed that emerging products, including AI analytics and Zero Trust branch solutions, are growing twice as fast as core products, contributing significantly to large deal wins.

What to Watch in Zscaler’s Fiscal Q2 2025 Earnings

Revenue Growth

Zscaler had in Q3 saw revenue grew 26% year-over-year to $628 million, with bookings growth accelerating to over 30%. New Q1 records for operating margin at 21% and free cash flow margin at 46%, highlighting strong profitability.

Consensus Estimate: Analysts likely expect revenue of $633 million and $635 million (up ~25–30% YoY), depending on guidance updates.

Profitability Metrics

Non-GAAP EPS: Focus on whether Zscaler continues to improve profitability. Prior quarters saw non-GAAP EPS of $0.64–0.76, with margins expanding due to cost discipline.

GAAP Net Loss: Progress toward narrowing losses (e.g., reduced stock-based compensation or operating expenses).

Billings Growth

Billings (a leading indicator of future revenue) slowed slightly in recent quarters (e.g., 27% YoY in Q2 2024). Investors will watch for stabilization or reacceleration, which would signal strong demand for its zero-trust and cloud security platforms.

Guidance for FY 2025

Management’s outlook for FY2025 revenue and profitability will be critical. Investors want reassurance that growth can remain above 25%+ amid competition and economic uncertainty.

Key Business Drivers

Large Enterprise Deals: Adoption of Zscaler’s platform (e.g., Zero Trust Exchange) by Fortune 500 companies. Significant customer wins with AI-powered data protection solutions, contributing to a 7-figure ACV deal with a Global 2000 technology services customer.

Product Innovation: Updates on newer offerings like AI-driven threat detection or cloud workload protection. In fiscal Q1, ZS added a new cabinet-level agency, now serving 14 of 15 cabinet-level agencies, indicating strong growth opportunities in the federal vertical.

In previous Q1, emerging Products ARR is growing twice as fast as core products, with significant deals in Zero Trust SD-WAN and workload protection.

Competition: How Zscaler is faring against rivals like Palo Alto Networks (Prisma SASE), CrowdStrike, and Netskope. Ongoing scrutiny by customers on large deals, indicating potential challenges in closing significant transactions.

Potential Risks & Challenges

Macroeconomic Headwinds: Prolonged IT budget tightening could delay deals or reduce contract sizes.

Billings Volatility: Slower billings growth might raise concerns about future revenue durability. Gross margin slightly declined to 80.6% from 80.7% a year ago, due to new products optimized for faster go-to-market rather than margins.

Valuation: Zscaler trades at a premium (e.g., ~10x EV/Sales), so any growth deceleration could pressure the stock. Remo Canessa announced his retirement, which might impact leadership stability during the transition.

Zscaler (ZS) Price Target

Based on 13 Wall Street analysts offering 12 month price targets for Zscaler in the last 3 months. The average price target is $235.46 with a high forecast of $250.00 and a low forecast of $215.00. The average price target represents a 24.72% change from the last price of $188.79.

There have been market weakness due to sell-off since March trading started so we need ZS to produce strong billings, raised guidance, and margin expansion to see a price expansion to the uptrend post earnings.

Technical Analysis - Exponential Moving Average (EMA)

From the technicals, ZS is trading below the 200-day period after trading sideway towards the end of February 2025, this signal that market is bearish on this cyber security stock.

Despite there is potential demand for cyber security amidst the AI revolution, the market does not favour the cyber security stock, so in order for ZS to make a reversal, what it need is really an earnings beat with a positive guidance for FY 2025.

Summary

While ZS have seen revenue growth pretty significant over the last few quarter, there is a need for billings reacceleration as the market is currently experiencing a sell-off.

So if the FY2025 guidance aligning with ~25%+ growth, that might not be enough to push ZS share price higher. This is what I see two scenarios on the earnings result.

I will be watching this stock closely and see how it will played out on 04 March 2025.

Bull Case: Strong billings, raised guidance, and margin expansion could drive shares higher, especially if cybersecurity spending remains resilient.

Bear Case: Billings weakness, conservative guidance, or market share losses to competitors might trigger a sell-off.

Appreciate if you could share your thoughts in the comment section whether you think ZS could give an earnings beat and make the market sentiment increase to see a price gap up.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.