Jefferies has made an adjustment to the financial outlook for Zscaler (NASDAQ: NASDAQ:ZS) after The firm's analyst reduced the price target on the stock to $225 from the previous $250 while still recommending a Buy rating.
The adjustment follows Zscaler's fiscal fourth-quarter billings growth, which, at 27%, surpassed the consensus estimate of 24%. However, the company's first half fiscal year 2025 guidance, projecting a year-over-year growth of 13%, has raised some concerns among investors and analysts alike.
The analyst noted that the lower-than-expected growth projection for the first half of fiscal year 2025 is influenced by changes in the go-to-market (GTM) strategy and previous weaker results in the first half of the fiscal year.
Despite these factors, the firm maintains that Zscaler's potential billing trajectory for the full fiscal year 2025 is likely to mirror past performance, suggesting a low to mid-20s percentage growth. This estimate would outperform the company's own guidance of 19%.
The guidance for the first half of fiscal year 2025 has brought to light questions regarding the intensity of competition and the total addressable market (TAM) penetration for Zscaler. The firm's analyst underscored these concerns in their commentary, indicating that the guidance could amplify such questions within the investment community.
Nevertheless, Jefferies continues to view Zscaler as a leading Secure Access Service Edge (SASE) provider, at a stage where the market is still developing. The analyst's perspective suggests confidence in the company's long-term market position and growth potential.
In other recent news, Zscaler, a leading cloud-based information security company, reported strong performance in its fourth-quarter results for fiscal year 2024.
The company's revenue, operating margin, and free cash flow for the quarter exceeded expectations, with a year-over-year billings growth of 27% surpassing consensus estimates. However, Zscaler's guidance for fiscal year 2025 billings was slightly below consensus, suggesting weaker billings in the first half of the year.
Analysts from JPMorgan, BTIG, and Guggenheim have revised their price targets for Zscaler shares following the company's recent earnings report. JPMorgan cut its target to $220, while BTIG reduced its target to $205, both maintaining their positive ratings on the stock. Guggenheim maintained a Neutral rating, anticipating a revenue beat for the company's fourth quarter.
Zscaler also reported a significant milestone by surpassing $2.5 billion in Annual Recurring Revenue (ARR). The company saw healthy momentum with large customers, and emerging products made up 22% of new business.
InvestingPro Insights
As Zscaler navigates its revised fiscal year 2025 guidance, investors may find value in recent data and insights from InvestingPro. Analysts are optimistic about Zscaler's future, expecting net income growth this year and predicting the company will turn profitable within the same timeframe. This is in line with the company's impressive gross profit margins, which stood at 77.94% over the last twelve months as of Q3 2023, highlighting its strong ability to manage costs relative to revenue.
Despite not being profitable over the last twelve months, Zscaler's liquid assets have surpassed its short-term obligations, indicating a healthy liquidity position. This financial stability is reflected in the company's moderate level of debt, which suggests prudent financial management. Additionally, Zscaler's stock has shown a strong return over the last month, with a 13.96% increase, signaling positive market sentiment.
For those interested in a deeper analysis, InvestingPro provides additional tips on Zscaler, which can be explored at https://www.investing.com/pro/ZS. With a total of 12 InvestingPro Tips available, investors can gain a more comprehensive understanding of the company's financial health and market potential.
Considering the company's market capitalization of 29.2 billion USD and a high Price / Book multiple of 26.71, investors are valuing Zscaler not just for its current assets but for its growth prospects as well. The recent fair value assessments from analysts and InvestingPro stand at 225 USD and 191.63 USD respectively, offering a range for investors to consider when evaluating the stock's potential.
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