Zscaler Is Top Pick, Thanks To SASE Demand Resilience, Robust Pipeline, Cost Efficiency: Analyst

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  • Needham's Alex Henderson maintained a Strong Buy rating on Zscaler, Inc ZS with a price target of $210.00.
  • The analyst chose ZS as Top Pick in Security for CY23 as resilient SASE demand drove visibility to 30%+ growth, a Rule of 50+ metrics, and expanding margins. 
  • Henderson caught up with management in the QP and thought ZS sounded much better than most other names. 
  • ZS seems solidly upbeat despite the macro headwinds. The business remains healthy, and the pipeline is robust. 
  • ZS has also staffed up in Sales to provide ample capacity to go after this business. 
  • Compared to other Security companies, ZS seems more robust in its ability to weather the macro storm. 
  • While a steep recession would likely hit every company, the current economic deceleration does not appear to be impacting ZS's pipeline.
  • ZS does not appear to be seeing the same level of deceleration as its peers, given its robust pipeline, larger deal sizes, and ability to sustain pricing. 
  • Key to ZS's strength appears to be its value in helping companies do more with less in an increasingly constrained spending environment. 
  • Also, the key is ZS's ability to win or convert new accounts without enormous upfront switching costs, a crucial advantage as customer budgets tighten. 
  • The analyst's checks mostly found Zscaler as one of the strongest OEMs. 
  • Henderson's contacts note that Zscaler has lower initial implementation costs and can deliver considerable cost savings, rapid ROI, and lower infrastructure IT management, all of which are valued in this challenging staffing environment. 
  • Zscaler offered these reasons for its sustained success in converting new customers. 
  • Many security companies find winning new customers more challenging as tight budgets make it difficult to absorb upfront transition costs.
  • Henderson saw ZS well positioned to pick up new business on top of the major DoD wins already achieved.
  • Zscaler's newer products saw strong uptake and are on pace to contribute a high-teens % of new business in FY23.
  • Price Action: ZS shares traded lower by 0.55% at $104.17 on the last check Tuesday.
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