Free Trial

Zscaler: Analysts Raise the Bar for the AI Cloud Security Company

Zscaler logo on a computer; learn more about Zscaler stock price on MarketBeat

Key Points

  • Zscaler issued a robust report and shares moved up. 
  • Analysts like what they see and began raising price targets. 
  • A hurdle remains but a new rally may form if the market can gain traction. 
  • 5 stocks we like better than Zscaler

Zscaler Inc. NASDAQ: ZS has differentiated itself from competitors and emerged as the leader in AI-powered cloud security. Unlike competitor SentinelOne Inc. NASDAQ: S, the company's FQ3 results increased the market, extending the gains inspired by the NVIDIA Co. NASDAQ: NVDA AI-powered blowout.

The takeaway for investors is that this company's business is still growing at a near 50% year-over-year (YoY) pace, driven by strength in all sectors. That's sectors of the economy, not segments of business that are also performing better than consensus. Companies of all varieties are turning to Zscaler for their security needs, which will sustain growth over the next few years. 

The third-quarter revenue is less than $50 million compared to Palo Alto Network's $1.78 billion, suggesting Zscaler could double or triple in size. 

Zscaler Scales with Clients, Outpaces Consensus

Among Zscaler's many features are its ability to scale and provide scalable security solutions to its clients. Those features led to $418.8 million in revenue, a gain of 46% compared to last year, 170 bps above the MarketBeat.com consensus figure and better than last month's pre-announcement, although growth continues to slow. The good news is that calculated billings of 40% and deferred revenue of 44% suggests a high level of growth will continue this year. 


The margin news is also good. Disciplined spending and revenue leverage led to a sharp contraction in operating losses. The GAAP loss shrank to 13% of revenue from last year's 30%, and the cash flow adjusted figures are even better. The company's adjusted net income more than tripled, leaving FCF at $73.9 million, up 70% and 18% of revenue, increasing 300 basis points YoY. 

The guidance is equally good and includes outperformance in the fourth quarter. The company expects revenue and earnings in a range above the analysts' consensus figures, and the guidance may be cautious. The company is cementing its position and may continue to build momentum through the end of the year despite macro headwinds.  

The Analysts Raise the Bar for Zscaler 

The analysts like what they see in Zscaler's results. The 35 analysts with current ratings have issued six reports that Marketbeat has picked up so far — all include a price target increase. The new range has the Zscaler stock price trading well above the $165 consensus figure, which assumes 15% of the upside even with the post-release price surge. 

The consensus figure is still trending lower, but the new activity shows a floor in sentiment and one that should help propel the stock to new highs over the summer. 

The institutional activity may be a headwind. The institutions have shedded shares for the last few quarters, selling the total position down to about 44%. It will have difficulty gaining traction if they continue to sell into the rally. The caveat is that institutional sentiment may improve and support the market. The market could rise above critical resistance and into the $175 range in this scenario. 

The Technical Outlook: Zscaler Bottomed Out

Zscaler's shares have bottomed and rebounded, but a sustained rally may not have started. The market faces significant resistance at $158.50, which could cap gains over the summer. If the market can not reach that level, range-bound conditions are likely. If the market can get above that level, the next hurdle is near $190. 

Zscaler stock price on MarketBeat and chart

→ $5k to $1.3m in just 3 trades (From Insiders Exposed) (Ad)

Should you invest $1,000 in Zscaler right now?

Before you consider Zscaler, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Zscaler wasn't on the list.

While Zscaler currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

A Guide To High-Short-Interest Stocks Cover

MarketBeat's analysts have just released their top five short plays for July 2024. Learn which stocks have the most short interest and how to trade them. Click the link below to see which companies made the list.

Get This Free Report
Thomas Hughes
About The Author

Thomas Hughes

Contributing Author

Technical and Fundamental Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Palo Alto Networks (PANW)
4.373 of 5 stars
4.37 / 5 stars
$327.21+1.0%N/A47.56Moderate Buy$325.59
NVIDIA (NVDA)
4.7157 of 5 stars
4.72 / 5 stars
$121.070.0%0.03%70.80Moderate Buy$129.76
SentinelOne (S)
2.315 of 5 stars
2.32 / 5 stars
$21.40+6.3%N/A-20.98Moderate Buy$24.87
Zscaler (ZS)
4.0002 of 5 stars
4.00 / 5 stars
$189.00-0.7%N/A-370.59Moderate Buy$225.21
Compare These Stocks  Add These Stocks to My Watchlist 


Featured Articles and Offers

3 Top Market Leaders Splitting Their Stocks

3 Top Market Leaders Splitting Their Stocks

Get an exclusive look at our top three stocks to watch for potential splits.

Related Videos

4 Best Tech Stocks to Own in 2024
NVIDIA Tops Microsoft and Apple for Most Valuable Company
3 Strong Buy Stocks for a Summer Surge

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines