8 Zscaler Analysts Offer Their Takes On Q3 Print: Why The Company May 'Need To Tread Carefully Throughout FY23'

Zinger Key Points
  • Given the current environment, Zscaler’s growth and margin expansion represent “a clear win,” one analyst says.
  • Although the company is holding up against macro challenges, it will need to tread fiscal 2023 very carefully, another analyst states.

Zscaler Inc.’s ZS shares traded higher in the after-hours session on Thursday, following the company’s fiscal first-quarter print.

Zscaler reported revenues of $355.55 million and earnings of 29 cents per share, with both matrices topping consensus estimates.

Stephens On Zscaler

Analyst Brian Colley reiterated an Overweight and a price target of $175.

“ZS reported F1Q results that exceeded Street expectations on both the top and bottom lines,” Colley said. “However, the magnitude of the billings beat (2%) was well below prior quarters (average of +17% over the last 4 quarters) and likely below buyside expectations,” he added.

Needham On Zscaler

Analyst Alex Henderson maintained a Strong Buy rating and a price target of $210.

“Zscaler delivered strong results and guidance despite increasingly challenging macro conditions,” Henderson wrote in a note.

“Where others have lowered expectations, ZS was able to Beat the quarter, raise the guide for FY2Q23 on indications of a 'strong pipeline' and maintain or raise the outlook for FY23 metrics,” the analyst said. “In this environment with this level of growth and margin improvement, we see this as a clear win,” he added.

JMP Securities On Zscaler

Analyst Trevor Walsh maintained a Market Outperform rating, while lowering the price target from $280 to $225.

Zscaler is a “durable growth story,” with an experienced management team “under the passionate leadership of CEO and co-founder Jay Chaudhry, with an emphatic vision to deploy all ZS product pillars across all users, and now workloads, within an account, and displace legacy perimeter-based architectures,” Walsh said in a note.

The company “demonstrated success as a modern network security platform play, with a substantial 6x expansion opportunity on the core ZIA/ZPA products standalone,” he added.

Cantor Fitzgerald On Zscaler

Analyst Jonathan Ruykhaver reiterated a Neutral rating and a price target of $160.

“Despite the macro challenges and sales reorg disruption, we believe Zscaler is holding up fairly well, especially in the large deals, with the enterprise level supported by the need for Zero Trust & Secure Service Edge products in a cyber threat landscape running at high alert,” Ruykhaver mentioned.

Although Zscaler “will need to tread carefully throughout FY23 as customers are rationalizing big-dollar spending,” the company's Zero Trust Exchange “will be positioned as a hedge to capitalize on the consolidation theme going forward,” he added.

Check out other analyst stock ratings.

Truist On Zscaler

Analyst Joel Fishbein reaffirmed a Buy rating and a price target of $250.

“ZS continued its strong momentum with another strong beat on both the top and bottom lines in 1Q23 in a challenging macro environment,” Fishbein said.

“ZS is benefiting from a favorable demand backdrop and secular tailwinds of digital transformation, cloud security, and Zero Trust architecture,” the analyst wrote. “Newer products, like ZDX and Zscaler for Workloads are now starting to drive customer growth in addition to increased upsell opportunity,” he added.

Guggenheim Securities On Zscaler

Analyst John DiFucci reiterated a Buy rating, while reducing the price target from $233 to $190.

“New ACV did grow from a year ago, but by a much lower rate (7.5%) than it has since just before COVID-19, when the company struggled through GTM issues,” DiFucci said. “We don’t think there’s much of a competitive issue here, largely because there’s enough white space to support several vendors, but we wonder about accelerating growth in PANW's NGS ARR,” he added.

RBC Capital Markets On Zscaler

Analyst Matthew Hedberg reiterated an Outperform rating, while reducing the price target from $185 to $155.

“Zscaler delivered a quarter with slight revenue/billings deceleration at 54%/37% (42% normalized billings growth) though billings showed less upside than historically,” Hedberg stated in a note. “A higher level of deal scrutiny was noted due to macros, though the number of large, multi-year/product deals remains at record levels and resulted in a sales reorg to better address the opportunity,” he added.

Wedbush On Zscaler

Analyst Daniel Ives maintained an Outperform rating, while cutting the price target from $200 to $180.

“While macroeconomic factors provide clear uncertainty causing enterprises to become more cautious on strategic moves, ZS is capitalizing on the current market opportunity with customers adopting and innovating to build its pipeline, ultimately mitigating macro pressures and elongating sales cycles,” Ives wrote.

ZS Price Action: Shares of Zscaler declined by 10.95% to $128.68 Friday morning.

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Posted In: Analyst ColorEarningsNewsPrice TargetReiterationTop StoriesAnalyst RatingsMoversTrading IdeasAlex HendersonBrian ColleyCantor FitzgeraldCybersecurityDaniel IvesGuggenheim SecuritiesJMP SecuritiesJoel FishbeinJohn DiFucciJonathan RuykhaverMatthew HedbergNeedhamRBC Capital MarketsStephensTrevor WalshTruistWedbush
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