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Zscaler shares soared to an all time high after beating earnings exppectations and raising guidance as the lockdown Work From Anywhere Trend (WFA) and the digitization of business underscores that the shift continues to benefit $ZS with the surge in demand for it's cloud security products.

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The work-from-anywhere (WFA) trend and the digitization of businesses increases IT security risks with ZScaler perfectly positioned to capitalize on what is for them a favorable climate.

Zscaler Inc. (NASDAQ: $ZS) Reported Earnings After Close Wednesday

$0.14 Beat $0.06 EPS Forecast and $142.6 million Beat $132.3 million Revenue Forecast

Earnings

Zscaler (ZS) announced fiscal first quarter 2021 earnings that beat analyst estimates handliy with EPS of $0.14 compared to the $0.06 expectations and revenue of $142.6 mln crushing $132.3 mln consensus estimates.

"We delivered 52% growth in revenue and 64% growth in billings, while also generating record operating profits and free cash flow. I believe our financial results demonstrate Zscaler’s pivotal role in enabling our customers’ digital transformation journeys, which are accelerating at a pace never seen before." CEO Jay Chaudhry

Zscaler Inc NASDAQ: ZS

Market Reaction 185.61 ▲ 38.82 (+26.45%) Market Close December 3

Highlights

While $ZS beat analysts' expectations, the highlight is the rising growth rate. After climbing by 40% in 3Q20, revenue growth jumped to 46% last quarter and then to 52% in 1Q21. Furthermore, calculated billings growth increased from 55% last quarter to 64% this quarter.

Zscaler Earnings Q1 2021

Three factors that drove Zscaler's strong performance in the quarter.

In the earnings conference call CEO Chaudhry outlined what boosted the company:

One, building on our growing traction with large enterprises. We closed a record number of seven figure ACV deals. The majority of these wins are three-year commitments to provide the foundation for application, network and security transformation. In particular, I’m pleased with our increasing wins in the financial services vertical, which is now embracing the cloud and the Office 365 deployments have become an important catalyst for us.

Two, our optimized go-to-market engine is driving significant velocity, including a strong pace of new logo acquisitions. I’m very pleased with our performance across all geos. Last year, we doubled down on our investment in our sales organization. We scaled our sales enablement team and built a repeatable and metrics driven process, which is giving us better visibility into our business and ultimately, resulting in a strong and growing pipeline. These efforts are also bearing fruit in two big ways. One, our newly hired sales reps are contributing at a faster pace. And two, our sales productivity is higher than a year ago, despite a high percentage of ramping sales reps.

Three, the power of our Zero Trust Exchange platform is resonating with CxOs. Our platform is comprised of four key pillars with each enabling a critical element of the transformation. ZIA to secure direct access to Internet and SaaS, ZPA for zero trust access to private applications, Zscaler Digital Experience or ZDX to deliver user experience for work from anywhere, cloud workload segmentation to protect applications.

Outlook

For Q2, ZS is forecasting revenue of $146-$147 vs. the $140.3 mln consensus estimate, meaning yr/yr growth of ~46%, representing a minor slowdown from current levels. Though for context ZS has blown past its own top-line projections over the last two quarters.

Zscaler Growth

At the core of ZS's robust growth is strengthening demand for its Zero Trust Exchange platform which allows companies to securely connect employees to cloud-based applications. The WFA transition has substantially increased the number of devices outside the office that need to be protected. At the same time the amount of data being moved off-premise to the cloud is expanding exponentially and many indicated are that this will continue as the Covid economy leaves perminent culture changes. It is also fair to say that ZS's cloud security products are gaining traction across a spectrum of business sizes and verticals.

CEO Jay Chaudhry in his conference call pointed to strength within large enterprises, noting that ZS closed a record number of seven-figure deals during the quarter. The success ZS experienced in landing large deals can be tied to its strategy to bolster its sales force last year.

Chaudhry commented that the newly hired sales reps are contributing at a faster-than-expected pace and that sales productivity is higher than a year ago.

While that all sounds grand the risk lies in gross margin which is expected to pull back a little in FY21 to 79%. This quarter, gross margin expanded by two percentage points sequentially to 81%, this was driven by the migration of infrastructure to its own data centers. Some new products, such as ZDX and workload segmentation, will run in the public cloud until ZS can transition them to the company's data centers. As a result, these products will carry lower gross margin than its core products, putting downward pressure on total gross margin. Again this all depends on what the stock market is honing in on, but be aware of this risk.

Source: TradersCommunity, Zscaler, Alpha Street

From The TradersCommunity News Desk

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