Zscaler Stock Tumbles on Profit Concerns
Zscaler, a cloud security company, experienced a significant stock price drop of 13% in after-hours trading, despite posting impressive fourth-quarter results. The decline was primarily attributed to a cautious profit outlook for the upcoming fiscal year, which disappointed investors.
Understanding the Financial Performance
In the fourth quarter, Zscaler reported an adjusted earnings per share (EPS) of $0.88, significantly exceeding analyst expectations of $0.70. This metric, representing the company's profitability, indicates a strong performance. Revenue for the same period was $592.9 million, showcasing a 30% year-over-year increase and surpassing the consensus estimate of $567.46 million.
Fiscal 2025 Outlook Raises Concerns
Despite these positive results, Zscaler's future outlook raised concerns among investors. The company projected full-year adjusted earnings for fiscal 2025 to be between $2.81 and $2.87 per share, falling short of the anticipated $3.01. This gap in expectations led to unease in the market, reflected in the stock's decline. On the revenue front, Zscaler provided guidance of $2.60 billion to $2.62 billion, aligning with market estimates.
Positive Developments and Challenges
Jay Chaudhry, Chairman and CEO of Zscaler, expressed satisfaction with the company's performance, stating, "We ended a successful Fiscal 2024 with Q4 results exceeding the high end of our guidance across all metrics." He also highlighted the growing customer adoption of their Zero Trust Exchange platform, which achieved a milestone of over half a trillion transactions daily.
For the first quarter of fiscal 2025, Zscaler anticipates revenue between $604 million and $606 million, slightly exceeding analyst expectations. However, the adjusted EPS forecast of $0.62 to $0.63 is below the expected $0.73, contributing to investor concerns.
Indicators of Future Growth
On a positive note, the company's deferred revenue—a key indicator of future growth—rose by 32% year-over-year, reaching $1.895 billion. Additionally, Zscaler reported a cash flow from operations of $203.6 million, accounting for 34% of the revenue, indicating robust operational efficiency.
These financial metrics provide a mixed picture, showing strong past performance but uncertain future profitability, which has understandably led to market apprehension.
