On Wednesday, Cantor Fitzgerald adjusted its outlook on Zscaler (NASDAQ:ZS), a leader in cloud security, by lowering the stock's price target to $170 from the previous $200, while maintaining a Neutral rating on the shares. The revision follows Zscaler's fourth fiscal quarter results for 2024, which showed strong performance but offered guidance for the 2025 fiscal year that did not exceed market expectations.
Zscaler reported a robust end to the fiscal year 2024, but the focus for analysts and investors shifted to the company's forecast for fiscal year 2025, particularly regarding billings, a key performance indicator. The company's guidance for fiscal year 2025 billings indicates a 19% year-over-year growth at the midpoint, amounting to $3.123 billion, which aligns with the FactSet consensus estimate. However, this projection falls short of what the market had anticipated, typically expecting a higher margin of upside.
The company expects billings growth in the first half of fiscal year 2025 to hit 13%, following a strong exit from the fourth quarter at 26.6% and 28.9% for the full fiscal year 2024. For the math to align with the 19% growth target for the entire fiscal year 2025, billings growth would need to reaccelerate to 23% year-over-year in the second half of the year. The slower billings growth in the first half is attributed to a challenging macroeconomic environment, which has affected contracted, non-cancellable billings or scheduled billings in the first halves of the past two fiscal years.
Following the announcement and the subsequent guidance provided by Zscaler, the company's stock experienced a significant drop in the aftermarket on September 3, falling approximately 15%, which was a sharper decline than the S&P 500's 2% drop. This market reaction reflects investor sentiment and the importance placed on billing growth projections as an indicator of the company's future performance.
In other recent news, Zscaler has been garnering attention due to its fiscal fourth-quarter results which demonstrated a 27% increase in billings, surpassing expectations and achieving over $2.5 billion in Annual Recurring Revenue (ARR).
However, the company's guidance for the first half of fiscal year 2025, projecting a 13% growth, has sparked concerns among investors. Analysts from various firms including UBS, Wells Fargo, Jefferies, JPMorgan, and BTIG have adjusted their price targets for Zscaler, while maintaining their respective ratings.
The company has also been noted for its collaborations with Google (NASDAQ:GOOGL) and NVIDIA (NASDAQ:NVDA) to enhance security measures and integrate advanced AI technologies. Despite the projected slowdown in billings growth for the first half of FY2025, these analysts expressed confidence in Zscaler's long-term market position and growth potential.
Although the company's billings guidance may reflect a conservative approach, investors are expected to closely monitor the dynamics of billings in the first half of fiscal year 2025 and the anticipated ramp-up in the second half.
InvestingPro Insights
As Zscaler navigates a challenging macroeconomic environment, insights from InvestingPro reveal a mixture of expectations and financial health that could shape investor sentiment. Analysts, aligned with one of the InvestingPro Tips, predict sales growth in the current year, which corroborates the company's own forecast for fiscal year 2025. Another tip highlights Zscaler's impressive gross profit margins, which stand at 77.94% for the last twelve months as of Q3 2024, reflecting the company's strong ability to manage costs relative to revenue.
From a valuation standpoint, Zscaler's Price / Book multiple is high at 26.71, and the company is trading at a high revenue valuation multiple. This suggests that the market has high expectations for the company's future growth, which may add pressure for Zscaler to meet or exceed these expectations. Notably, the company's market capitalization is currently at $29.2 billion, indicating a strong market presence.
Investors considering Zscaler's prospects can find additional insights and tips, including the company's anticipated net income growth this year and its moderate level of debt, on InvestingPro. There are 12 more InvestingPro Tips available for Zscaler, which provide a comprehensive analysis for potential investors.
For an in-depth look at Zscaler's financials and expert analysis, visit InvestingPro.
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