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Zscaler (ZS) Stock Pops 8% on Q3 Earnings Beat, Outlook Raised
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Zscaler (ZS - Free Report) shares gained 8.3% during Tuesday’s extended trading session after the cloud-based security solutions reported better-than-expected fiscal third-quarter results and raised outlook for fiscal 2021.
Zscaler’s fiscal third-quarter adjusted earnings jumped more than two-fold to 15 cents per share from the 7 cents reported in the year-ago period. Moreover, quarterly earnings beat the Zacks Consensus Estimate of 7 cents per share.
Top-Line Performance
Revenues of $176.4 million jumped 60% year over year on rise in adoption of the company’s cloud platform security solutions by global enterprises. The figure surpassed the consensus mark of $164.4 million.
Americas accounted for 51% of revenues, while the EMEA contributed 38%. The remaining 11% came in from the Asia Pacific and Japan.
Calculated billings surged 71% year over year to $225 million during the reported quarter.
Zscaler’s quarterly results benefited from continued solid demand for its products, given the healthy environment of the global security market.
Also, a huge global workforce is working remotely in an effort to contain the spread of coronavirus. However, an increasing number of people logging into employers' networks has been prompting a greater need for security. This trend spurred demand for Zscaler’s products during the fiscal third quarter.
Customer Details
Zscaler continued to win customers and its net dollar retention rate was outstanding at 126% compared with the previous quarter’s 127% and the year-ago quarter’s 119%.
Remaining Performance Obligations (RPO), which represent Zscaler’s committed non-cancelable future revenues, were $1.2 billion as of Apr 30, significantly up 85% year over year.
Operating Details
In the reported quarter, non-GAAP gross margin expanded 100 basis points (bps) year over year to 81%. Sequentially, non-GAAP gross margin remained flat. The company noted that gross margin remained under pressure during the second half of fiscal 2021 due to the increased use of public cloud to meet the ten time surge in ZPA traffic as pandemic lockdowns began.
Non-GAAP research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses flared up 55%, 56% and 33% to $25.9 million, $80.9 million and $12.9 million, respectively.
Total non-GAAP operating expenses shot up 53% to $119.7 million year over year. However, as a percentage of revenues, operating expenses shrunk 300 bps to 68% mainly due to lower T&E, partially offset by increased hiring and M&A expenses.
As a result of higher gross margin and lower operating expenses as a percentage of sales, non-GAAP operating margin improved 400 bps to 13%. Non-GAAP operating income was $22.9 million in the fiscal third quarter compared with the year-ago quarter’s $9.7 million.
Balance Sheet & Cash Flow
As of Apr 30, Zscaler had $1.47 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.44 billion. Notably, the company had issued convertible senior notes worth $1.15 billion in June 2020.
In the reported quarter, the company generated operating cash flow of $73.4 million and $55.8 million of free cash flow. In the first nine months of fiscal 2021, it generated operating and free cash flows of $157.3 million and $116 million, respectively.
Deferred revenues surged 65% year on year to $495.4 million.
Guidance
For fiscal 2021, Zscaler raised the revenue guidance to $660-$664 million from the $634-$638 million projected earlier. The Zacks Consensus Estimate for fiscal 2021 revenues is pegged at 40 cents per share.
Non-GAAP income from operations is now expected to be $71-$72 million, up from the previous forecast of $59-$61 million. The non-GAAP earnings estimate has been revised upward to 47 cents per share from the earlier range of 39-40 cents per share. The consensus mark for earnings is pegged at 40 cents per share.
The company’s fiscal 2021 calculated billings are estimated now between $878 million and $880 million, up from the prior projection of $820-$825 million.
For fourth-quarter fiscal 2021, Zscaler projects revenues between $185 million and $187 million. Non-GAAP income from operations is estimated between $13.5 million and $14.5 million. Non-GAAP earnings are projected in the range of 8-9 cents per share. The Zacks Consensus Estimate for fourth-quarter revenues and earnings are pegged at $174 million and 9 cents per share.
Zacks Rank & Stocks to Consider
Currently, Zscaler carries a Zacks Rank #3 (Hold).
The long-term earnings growth rate for Lam Research, ASML Holding, and NVIDIA is currently pegged at 32.8%, 29.8% and 15.2%, respectively.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
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Zscaler (ZS) Stock Pops 8% on Q3 Earnings Beat, Outlook Raised
Zscaler (ZS - Free Report) shares gained 8.3% during Tuesday’s extended trading session after the cloud-based security solutions reported better-than-expected fiscal third-quarter results and raised outlook for fiscal 2021.
Zscaler’s fiscal third-quarter adjusted earnings jumped more than two-fold to 15 cents per share from the 7 cents reported in the year-ago period. Moreover, quarterly earnings beat the Zacks Consensus Estimate of 7 cents per share.
Top-Line Performance
Revenues of $176.4 million jumped 60% year over year on rise in adoption of the company’s cloud platform security solutions by global enterprises. The figure surpassed the consensus mark of $164.4 million.
Zscaler, Inc. Price, Consensus and EPS Surprise
Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote
Americas accounted for 51% of revenues, while the EMEA contributed 38%. The remaining 11% came in from the Asia Pacific and Japan.
Calculated billings surged 71% year over year to $225 million during the reported quarter.
Zscaler’s quarterly results benefited from continued solid demand for its products, given the healthy environment of the global security market.
Also, a huge global workforce is working remotely in an effort to contain the spread of coronavirus. However, an increasing number of people logging into employers' networks has been prompting a greater need for security. This trend spurred demand for Zscaler’s products during the fiscal third quarter.
Customer Details
Zscaler continued to win customers and its net dollar retention rate was outstanding at 126% compared with the previous quarter’s 127% and the year-ago quarter’s 119%.
Remaining Performance Obligations (RPO), which represent Zscaler’s committed non-cancelable future revenues, were $1.2 billion as of Apr 30, significantly up 85% year over year.
Operating Details
In the reported quarter, non-GAAP gross margin expanded 100 basis points (bps) year over year to 81%. Sequentially, non-GAAP gross margin remained flat. The company noted that gross margin remained under pressure during the second half of fiscal 2021 due to the increased use of public cloud to meet the ten time surge in ZPA traffic as pandemic lockdowns began.
Non-GAAP research & development (R&D), sales & marketing (S&M) and general & administrative (G&A) expenses flared up 55%, 56% and 33% to $25.9 million, $80.9 million and $12.9 million, respectively.
Total non-GAAP operating expenses shot up 53% to $119.7 million year over year. However, as a percentage of revenues, operating expenses shrunk 300 bps to 68% mainly due to lower T&E, partially offset by increased hiring and M&A expenses.
As a result of higher gross margin and lower operating expenses as a percentage of sales, non-GAAP operating margin improved 400 bps to 13%. Non-GAAP operating income was $22.9 million in the fiscal third quarter compared with the year-ago quarter’s $9.7 million.
Balance Sheet & Cash Flow
As of Apr 30, Zscaler had $1.47 billion in cash, cash equivalents and short-term investments compared with the previous quarter’s $1.44 billion. Notably, the company had issued convertible senior notes worth $1.15 billion in June 2020.
In the reported quarter, the company generated operating cash flow of $73.4 million and $55.8 million of free cash flow. In the first nine months of fiscal 2021, it generated operating and free cash flows of $157.3 million and $116 million, respectively.
Deferred revenues surged 65% year on year to $495.4 million.
Guidance
For fiscal 2021, Zscaler raised the revenue guidance to $660-$664 million from the $634-$638 million projected earlier. The Zacks Consensus Estimate for fiscal 2021 revenues is pegged at 40 cents per share.
Non-GAAP income from operations is now expected to be $71-$72 million, up from the previous forecast of $59-$61 million. The non-GAAP earnings estimate has been revised upward to 47 cents per share from the earlier range of 39-40 cents per share. The consensus mark for earnings is pegged at 40 cents per share.
The company’s fiscal 2021 calculated billings are estimated now between $878 million and $880 million, up from the prior projection of $820-$825 million.
For fourth-quarter fiscal 2021, Zscaler projects revenues between $185 million and $187 million. Non-GAAP income from operations is estimated between $13.5 million and $14.5 million. Non-GAAP earnings are projected in the range of 8-9 cents per share. The Zacks Consensus Estimate for fourth-quarter revenues and earnings are pegged at $174 million and 9 cents per share.
Zacks Rank & Stocks to Consider
Currently, Zscaler carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the broader technology sector include Lam Research Corporation (LRCX - Free Report) , ASML Holding N.V. (ASML - Free Report) and NVIDIA (NVDA - Free Report) . While Lam Research and ASML Holding sport a Zacks Rank #1 (Strong Buy), NVIDIA carries a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The long-term earnings growth rate for Lam Research, ASML Holding, and NVIDIA is currently pegged at 32.8%, 29.8% and 15.2%, respectively.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>