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What's in the Offing for Zscaler (ZS) This Earnings Season?

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Zscaler (ZS - Free Report) is set to report third-quarter fiscal 2021 results on May 25.

The company projects total revenues between $162 million and $164 million for the quarter. Non-GAAP earnings are estimated to be approximately 7 cents per share.

The Zacks Consensus Estimate for quarterly revenues is pegged at $164.4 million, indicating an increase of 48.8% from the year-ago quarter. The consensus mark for earnings has remained unchanged at 7 cents per share over the past 30 days, suggesting a flat year-over-year comparison.

Notably, the company’s earnings beat the Zacks Consensus Estimate in all of the preceding four quarters, the average surprise being 118.8%.

Factors to Consider

Zscaler’s quarterly results are likely to reflect continued solid demand for its security and networking products, given the healthy environment of the global security market.

Also, a big chunk of the global workforce is still working remotely in an effort to contain the spread of coronavirus. Therefore, an increasing number of people logging into employers' networks has been prompting a greater need for security. This trend is anticipated to have spurred demand for Zscaler’s products during the fiscal third quarter.

Additionally, solid adoption of the company’s Zero Trust Exchange platform owing to the ongoing digital transformation across enterprises is expected to have been a key catalyst.

Moreover, the addition of new capabilities to Zscaler’s Zero Trust Exchange, such as Cloud Access Security Broker (CASB), Cloud Browser Isolation and Zscaler Cloud Security Posture Management (CSPM) for SaaS applications, is likely to have driven the expansion of the company’s product portfolio and aided customer acquisition.

Further, Zscalar’s existing products, especially the ZPA (Zscaler Private Access), are driving strong customer retention. Notably, the company’s net dollar retention rate rose to 127% in second-quarter fiscal 2021 compared with the 122% recorded in the previous quarter and 116% in the year-ago period. This trend is expected to sustain as digital transformation continues across industries.

Apart from this, the company’s partnerships with VMware (VMW - Free Report) , Microsoft (MSFT - Free Report) , CrowdStrike (CRWD - Free Report) and Silver Peak are likely to have facilitated deployment of its Software-Defined Wide Area Network (SD-WAN) solutions, thereby boosting revenues during the quarter under review.

Nonetheless, increased investments to enhance sales and marketing capabilities, and higher research and development expenses are likely to have weighed on the company’s bottom line.

What Our Model Says

Our proven model does not predict an earnings beat for Zscaler this time around. The combination of a positive Earnings ESP, and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), increases the chances of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Zscaler currently carries a Zacks Rank of 3 and has an Earnings ESP of 0.00%.

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