Analysts remained upbeat on cloud security company Zscaler Inc. (NASDAQ:ZS) after strong first-quarter results, even as investors appeared more skeptical sending the stock down, likely on mixed second-quarter guidance.

Zscaler beat Street expectations on revenue, billings, and non-GAAP EPS in the quarter and raised full year guidance for both revenue and billings.

The Analysts

Bank of America analyst Daniel Bartus reiterated a Buy rating and raised the target price from $68 to $70.

Wedbush analyst Daniel Ives maintained an Outperform rating and $80 price target on Zscaler.

UBS analyst Fatima Boolani kept a Neutral rating on the stock but raised the price target from $53 to $55.

Baird Equity's Jonathan Ruykhaver kept an Outperform rating but lowered the target price from $70 to $65.

The Theses

It was a strong first quarter for Zscaler, analysts said, citing beats on several metrics, including revenue of $93.6 million topping estimates of $89.8 million and EPS of 3 cents ahead the 1 cent expectation.

But for Bartus, the most important takeaway was that management’s 2020 outlook on revenue and billings improved.

"In our view, trends remain strong and our Buy thesis remains intact as Zscaler captures share of a large and growing market opportunity," Bartus wrote in a note.

Billings growth of 37% was what jumped out at Ives, especially coming off a disappointing earlier quarter.

"Sales cycles now appear to be normalized, a building robust pipeline and what looks to be higher conversion rates with a tighter sales enablement process (are) now implemented in the field," Ives wrote.

But Is It Enough?

Boolani wondered if the strong quarter will kick off a stronger 2020.

Despite the beat and the guidance raise, growth trajectory implying deceleration below 40% and flat Remaining Performance Obligations may prove insufficient in sustaining the stock's current valuation, particularly amid rising competition, Boolani said.

Ruykhaver also had a word of caution as he lowered the price expectation for the stock, noting that second quarter comparisons will be tough.

But, "overall, we continue to believe in Zscaler's ability to enable network transformation; we see Office 365 deployment as a continued catalyst and look for continued traction for Zscaler's zero-trust offering, ZPA, going forward," Ruykhaver wrote.

Price Action

Investors appeared more skeptical than the sell-side analysts as Zscaler's traded down 5.6% to $49.82.

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