Despite a strong business performance, Zscaler stock is encountering a decline in value. The latest earnings update from the security-software company has failed to impress the market, even though analysts remain relatively unconcerned.
Zscaler shares experienced a 6.5% drop in premarket trading on Tuesday following the earnings update on Monday. Despite an increase in its full-year guidance, the stock failed to rally further after a remarkable 72% surge since the beginning of the year up until Monday’s closing.
Analysts attribute the decline to disappointment over the company’s decision to maintain its annual billings growth guidance at 24%-26%. This is despite Zscaler surpassing expectations for the first quarter and achieving billings growth of 34%.
In a research note, Evercore analyst Peter Levine reassures investors that, beyond the negative market reaction, the quarter was well-executed and most metrics performed exceptionally well. As a result, Levine maintains an Outperform rating on the stock and raises his target price to $215 from $200 previously.
Other analysts also remain unfazed by the billings guidance, highlighting the company’s cautious approach due to recent changes in its leadership, such as the appointment of new chief revenue and marketing officers.
With its strong business performance and strategic leadership changes, Zscaler’s future outlook remains promising.
Quarterly Analysis: Impressive Performance and Future Potential
Strong Quarter with Market Priced In
According to RBC Capital Markets analyst, Matthew Hedberg, the recent quarter showed promising results for the company. However, Hedberg also believed that much of this success had already been factored into the stock’s price. Nevertheless, he acknowledged the potential for future growth in the company’s artificial intelligence-enabled products and maintained an Outperform rating with a $220 target price.
Positive Quarter Amid High Expectations
Even though Zscaler delivered a solid quarter, Guggenheim Securities analyst, John DiFucci, noted that the expectations were high due to the stock’s significant gains earlier this year. DiFucci opted for a Neutral rating on the stock without specifying a target price. Yet, he highlighted the company’s unique assets and its potential for growth and long-term financial stability.
The Cybersecurity Sector Struggles
The recent earnings misses among industry peers have had a negative impact on the entire cybersecurity sector. Consequently, other cybersecurity stocks, such as Palo Alto Networks and CrowdStrike Holdings, experienced a decline in premarket trading on Tuesday. Palo Alto Networks saw a 0.8% decrease, while CrowdStrike Holdings dropped by 1.0%.