Zscaler shares drop on lower-than-expected outlook

Shares in Zscaler Inc. dropped in late trading after the cybersecurity company reported a slightly lower-than-expected outlook.

For its second-quarter ended Jan. 31, Zscaler reported a profit before costs such as stock compensation of $19.2 million or 13 cents per share, up from $14.8 million, 10 cents per share in the same quarter last year. Revenue in the quarter jumped 69% from a year ago, to $255.6 million.

Analysts had predicted an adjusted profit of 11 cents per share on revenue of $242 million.

The company’s net loss in the quarter widened to $100.4 million, from $67.5 million in the same quarter a year ago.

Recent company highlights include Zscaler launching a new Workload Communication solution as part of the Zscaler Zero Trust Exchange. The service extends zero-trust security to workloads and applications hosted in public clouds and helps information technology teams simplify multicloud workload connectivity.

“Driven by continued demand for our Zero Trust security platform, we delivered strong results for the second quarter, with our year-over-year revenue growth rate reaching its highest level in three years, even as we surpassed $1 billion in annualized revenue,” Jay Chaudhry, chairman and chief executive officer of Zscaler, said in a statement.

After releasing its earnings, Chief Financial Officer Remo Canessa provided some additional insight into Zscaler’s growth in an investor call. Canessa said that Zscaler had added more than 560 new customers paying over $100,000 annually in the past 12-month. Part of the growth is said to be coming from purchases of Zscaler software through cloud marketplaces on Amazon Web Services Inc. and Microsoft Corp.’s Azure.

Looking forward, Zscaler said it expects non-GAAP net income per share of between 10 cents and 11 cents on revenue of $270 million to $272 million. For the full fiscal year 2022, non-GAAP EPS is predicted to be 54 cents to 56 cents per share on total revenue of $1.045 billion to $1.05 billion.

Analysts had predicted EPS of 11 cents on revenue of $256.7 million in the third quarter and EPS of 52 cents on revenue of $1.01 billion for the full fiscal year.

There’s not a big difference in Zscaler’s outlook to what analysts had been predicting – estimated EPS range of 10 cents to 11 cents versus a prediction of 11 cents while the other outlook figures came in ahead. But that said, it was enough to spook investors.

On a day that cybersecurity stocks rose strongly due to the Russian invasion of Ukraine and an expected increase in demand for cybersecurity services, Zscaler’s share price went up in regular trading before losing those same gains after the bell.

After closing regular trading up 10.02% to $263.38, Zscaler’s share price then dropped 14.91% to $224.11 as of 8 p.m. EST.

Image: Zscaler