Why Investors Should Avoid Zscaler
The cybersecurity vendor continues to profit from the secular growth of its cloud-based security market. And its customers are increasingly using both of its main products: Zscaler Internet Access, a cloud-based gateway to the internet; and Zscaler Private Access, a solution to provide secure access to private networks from anywhere. As a result, Zscaler's fiscal first-quarter revenue of $93.6 million exceeded the guidance range of $89 million to $90 million, up 48% year over year. And the company posted a non-GAAP (adjusted) operating income of $2.9 million versus an expected loss. Despite this raised guidance, management's forecasts correspond to a growth deceleration after annual revenue growth of 50% over the last three years. Management highlighted the challenging comparison with the second fiscal quarter of last year because of significant nonrecurring revenue from a large customer. But calculated billings, which go beyond next-quarter comparisons, confirm Zscaler's growth deceleration. During the last quarter, GAAP net income was negative $17.1 million, a record loss since the company's first disclosed quarterly results ending in October 2016.