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Zscaler stock dives despite earnings beat as outlook disappoints

Yahoo Finance Live anchors discuss the decline in stock for Zscaler following first-quarter earnings.

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Still a few minutes until the final opening bell of the week. And before that, we want to take a look at a few of our trending tickers. One of our trending tickers right now, Zscaler. On the day-- or premarket, you're seeing that down by nearly 12%. Ticker symbol ZS, that's in focus this morning following an earnings report that saw the cybersecurity company beat estimates on the top and bottom line, as revenue for the first quarter grew 54% year-over-year.

Yeah, actual versus the estimates up on screen for you there. It was beat on both the top and bottom, as we mentioned. And then additionally here, the revenue growth, as I mentioned, 40-- or 54% calculated billings. That grew 37% year-over-year as well.

And then also, one of the other major things that the company had noted was the customer engagement. Customers engaging with them to embrace zero trust architecture eliminate point products, and then simplify it and standardize.

What that all means is that perhaps there are people who are leaning more into some of their services, knowing that you need a holistic-- and we were talking about this yesterday-- a holistic cybersecurity kind of privacy approach, as there are so many looming threats that just continue to multiply, seemingly, in this environment, too.

JULIE HYMAN: Yes, and yet, the stock is down 11%. So what's going on there? So what seems to be going on here is you just saw the guidance up on the screen for the calculated billings. $1.4 billion-- .94 billion is what analysts were looking for. So there seems to be some disappointment that while Zscaler raised the lower end of the forecast, it didn't raise the upper end of the forecast. Perhaps that's what's going on.

Just looking at some of the analyst commentary that we got out here, that seemed to be the-- the report is being seen as negative and that the upside wasn't enough, according to the folks over at Vital Knowledge. So that seems to be it.

The forward PE on this stock is relatively high, relative to the rest of the sector. So that seems to be why people are looking at this maybe with a little bit of a skeptical eye. And that's, by the, way, even after the stock is down more than 50% on the year. So most of the analyst commentary I saw was still not negative on the company, per se.

BRAD SMITH: Yeah.

JULIE HYMAN: But that is where the disappointment perhaps lies.

BRAD SMITH: Yeah. It's an interesting company, too. And I think for a lot of the ERP or even just broader business-to-business based companies that are required to sell into both their portfolio clients, as well as try to attract some net new customers, this is gonna be a tough period because you've already seen so much of the cost restructuring that's come forward from businesses and entities in everything from the headcount reduction or headcount hiring freeze side, all the way to the applications, internal applications, that they are using as well.

And so that's where it's going to be one of those periods that could be more challenging for them to sell into that total addressable market. However, this-- as they mentioned, this is an elevated threat environment. That coming from Jay Chaudhry, who is the chairman and CEO of Zscaler.

JULIE HYMAN: Right, friend of-- friend of the show. And we're looking at a board there of some of the other companies that came out with their numbers. Now, of those, Marvell is a chipmaker. But the others are all kind of software companies, cloud adjacent companies. And you can see most of them are down after earnings. All these companies reported earnings. The exception for these is Smartsheet.

We're gonna delve into the broader software sector and some of these individual names a little bit later on with Rishi Jaluria of RBC Capital Markets, who covers the software space, Salesforce as well which has been interesting, to talk about how these companies are navigating this current period, which as you were just talking about, is a pretty challenging one. So stay tuned for that conversation in a bit.