What Happened?
Shares of cloud security platform Zscaler (NASDAQ:ZS) fell 8.7% in the morning session after the company reported third-quarter (fiscal Q1'2025) earnings: What was less exciting was that the company gave revenue and adjusted operating profit for the next quarter that was only in line with expectations. It seems that for a high-multiple stock that's up nearly 15% in the last month (prior to the release of quarterly earnings), expectations were for more convincing guidance. Also, CFO Remo Canessa announced his retirement, a development that always adds more uncertainty to guidance.
On the other hand, Zscaler beat on billings, revenue, adjusted operating profit, and adjusted EPS. The company also lifted full-year guidance across the board as well. Overall, it was a solid quarter for the company, but the stock's reaction suggests markets were expecting more.
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What The Market Is Telling Us
Zscaler’s shares are not very volatile and have only had 8 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 17.8% on the news that the company reported weak second-quarter earnings results. Its billings guidance for next year was slightly below expectations, and furthermore, suggests an acceleration in growth throughout the year. Management specifically detailed "year-over-year billings growth of approximately 13% in the first half, accelerating to 23% growth in the second half." This made the market quite uncomfortable.
On the other hand, Zscaler beat analysts' billings, revenue, and operating income expectations during the quarter. Zooming out, we think this was a solid quarter featuring some areas of strength, but the outlook seems to be weighing on shares.
Zscaler is down 7.8% since the beginning of the year, and at $195.84 per share, it is trading 23.2% below its 52-week high of $254.93 from February 2024. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at an investment worth $3,709.
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