On Tuesday, Canaccord Genuity adjusted its price target for Zscaler (NASDAQ:ZS), a cloud-based information security company, reducing it to $220 from the previous $260, while reiterating a Buy rating on the stock. The adjustment follows Zscaler's third-quarter earnings, which surpassed expectations set by both Canaccord and the wider market consensus.
Zscaler reported a 30% year-over-year increase in billings for the third quarter, exceeding Canaccord's forecast by 8% with a total of $581 million. The company also raised its billings growth outlook for the fiscal year 2024 to 28%, after reporting a substantial 30% growth in the third quarter of fiscal year 2024. Additionally, Zscaler achieved a record operating margin during the quarter, leading to its first instance of GAAP profitability on a net income basis.
The company's Dollar-Based Net Retention (DBNR) rate remained robust at 116%, indicating strong upsell activities, which contributed to a 31% year-over-year growth in customers with an annual recurring revenue (ARR) of over $1 million. The total number of such customers reached 523. Zscaler also had a particularly successful quarter in the federal sector, with notable upsells to cabinet-level agencies.
Canaccord's analyst highlighted Zscaler's favorable position for continued growth, citing the company's solid technological foundation and the increasing adoption of its platform. The firm is benefiting from several industry trends, including cloud migration, security modernization, Zero Trust adoption, a distributed workforce, and a rise in targeted cyber breaches.
With recent acquisitions such as Airgap and Avalor, Zscaler is targeting an addressable market over $72 billion, which could expand further.
The firm anticipates that Zscaler's broad platform adoption and increasing customer spend will fuel sustained growth exceeding 30% in top-line revenue and over 20% in free cash flow margins. Canaccord foresees Zscaler as a long-term disruptive technology leader and recommends the stock as a fundamental holding for investors.
In other recent news, Zscaler has been the subject of several analyst reports following its strong Q3 performance and positive outlook.
Evercore ISI reduced the price target for Zscaler shares to $245 from $270, despite noting a robust fiscal third quarter performance by the company, including a year-over-year revenue increase of 32% and significant customer acquisition. TD Cowen, on the other hand, maintained a Buy rating on Zscaler shares, with a steady price target of $270.00, highlighting the company's 32% revenue growth and a 29% increase in calculated remaining performance obligations (cRPO) growth.
Oppenheimer also adjusted its outlook on Zscaler, reducing the price target on the company's shares to $260 from the previous $290, while BMO Capital Markets raised its price target for Zscaler shares to $208 from $192. Lastly, Piper Sandler reaffirmed an Overweight rating for Zscaler, with a steady price target of $255.00.
These recent developments reflect the analysts' confidence in Zscaler's market position and future performance, despite some adjustments to price targets.
InvestingPro Insights
As Zscaler (NASDAQ:ZS) continues to impress with its robust financial performance and strategic market positioning, insights from InvestingPro provide additional context for investors considering this cybersecurity titan. According to real-time data, Zscaler holds an impressive Market Cap of $25.33 billion USD. This valuation is underpinned by a significant Revenue Growth of 40.62% over the last twelve months as of Q2 2024, showcasing the company's aggressive expansion in the cybersecurity space.
Moreover, Zscaler's Gross Profit Margin stands at a remarkable 77.55%, reflecting the company's efficiency and the high value of its cloud-based security solutions. An InvestingPro Tip highlights that Zscaler's net income is expected to grow this year, which aligns with Canaccord Genuity's optimistic outlook. Additionally, analysts predict that the company will be profitable this year, echoing Zscaler's recent achievement of GAAP profitability on a net income basis for the first time.
For investors seeking a deeper dive into Zscaler's potential, there are over 10 additional InvestingPro Tips available, offering a comprehensive analysis of the company's financial health and market prospects. These tips can be accessed through the InvestingPro platform, and readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, further empowering their investment decisions.
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