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Zscaler (ZS) to Report Q1 Earnings: What's in the Cards?

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Zscaler, Inc. (ZS - Free Report) is set to report first-quarter fiscal 2019 results on Dec 4.

In the last reported quarter, the company's loss of 1 cent per share was narrower than the Zacks Consensus Estimate of a loss of 5 cents.

Revenues of $56.2 million came ahead of the Zacks Consensus Estimate of $51 million. The revenue beat was primarily driven by noteworthy customer wins, expanding international presence and product enhancements.

Notably, the cloud-based information security company debuted on Mar 16, 2018 on Nasdaq.

For the first quarter, Zscaler expects revenues between $58 million and $59 million.

The Zacks Consensus Estimate for the quarter to be reported is pegged at a loss of 5 cents per share while the same for revenues is pegged at $59 million.

Let’s see how things are shaping up for the upcoming announcement.

Factors Likely to Influence Q1 Results

Zscaler, Inc. Price and EPS Surprise

In the last reported quarter, Zscaler witnessed an increase in Total Global 2000 customers to 300 compared to 200 in the year-ago quarter. This reflects growing popularity of the company among the large enterprises.

The company also noted a surge in sales of the transformation bundle, which accounted for 35% of the total business in the last reported quarter. The transformation bundle gained traction among new as well as existing customers and is expected to expand its customer base.

Moreover, the company continues to upgrade its cloud platforms, which strengthens its competitive position and enhances usability. The company witnessed an increase in adoption of its software-defined wide-area network (SD-WAN), winning the biggest deal in the company’s history in the last-reported quarter.

These factors are expected to accelerate business for Zscaler in the to-be reported quarter.

Zscaler continues to expand its international presence with America and EMEA constituting 48% and 45% of revenues, respectively, in the last reported quarter.  

Zscaler Private Access (ZPA) is the first Zero Trust remote access platform that has received Federal Risk and Authorization Management Program (FedRAMP) certification from the federal government. Such certifications are likely to provide the company with a host of opportunities and make it more attractive to large enterprises in the near term.

Notably, in the to-be reported quarter, ZPA also achieved Amazon Web Service (AWS) Security Competency status. This is expected to boost customer and partner confidence and drive its top line in the to-be reported quarter.
In the last-reported quarter, billings surged 72% year over year to $95 million. However, the company expects billings to decline in the to-be reported quarter, which is a headwind.

However, Zscaler expects its litigation expenses to increase considerably from $1.4 million in the fourth quarter to $3-4 million in the to-be reported quarter. Additionally, the company continues to hire aggressively. This surge in expenses is expected to hurt profitability in the near term.

In the last reported quarter, Zscaler recorded dollar based net retention rate of 117%, primarily driven by its portfolio strength. However, management stated that it expects net retention rate, which is calculated on a year-over-year annual recurring revenue (ARR) basis, to decline in the near term as it continues selling bigger deals upfront.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.
    
Zscaler has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

lululemon athletica inc. (LULU - Free Report) has an Earnings ESP of +1.87% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caseys General Stores, Inc. (CASY - Free Report) has an Earnings ESP of +6.17% and a Zacks Rank #2.

The Cooper Companies, Inc. (COO - Free Report) has an Earnings ESP of +2.26% and a Zacks Rank #3.

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