Zscaler Inc: Cloud Security Firm Crushing Market, Up 125% in 2019

Zscaler, Inc. Cloud Security Firm Crushing Market, Up 125% in 2019
iStock.com/Denis Isakov

Zscaler Inc: What Do Hedge Funds Know That You Don’t?

Zscaler Inc (NASDAQ:ZS) has been crushing the market. Since going public in March 2018, ZS stock has soared 442%. It’s up approximately 125% year-to-date and it sits less than one percent from its July 24 all-time high of $86.84.

Insiders and hedge funds collectively own more than 82% of Zscaler. So what knowledge do they have that other investors are lacking?

ZS Stock Overview 

Zscaler Inc’s products are under two main umbrellas: “Zscaler Internet Access” (ZIA) and “Zscaler Private Access” (ZPA). ZIA focuses on open Internet and software-as-a-service apps, while ZPA provides a unique way to access internal applications—whether it’s in the cloud or a physical data center—without a virtual private network (VPN).

The company currently has 100 data centers located in 192 countries in six continents.

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Zscaler’s customers include the National Transportation Security Board, Siemens AG (ETR:SIE, OTCMKTS:SIEGY), Anheuser Busch InBev NV (NYSE:BUD), Carlsberg A/S (CPH:CARL-B, OTCMKTS:CABGY), British American Tobacco PLC (NYSE:BTI), Johnson Controls International PLC (NYSE:JCI), Manulife Financial Corporation (NYSE:MFC), and the Los Angeles Police Department.

ZS Stock Information

Market Cap $10.9 Billion
52-Week Change 118.5%
52-Week High $86.84
52-Week Low $30.72
Shares Outstanding 125.7 Million
Float 64.2 Million
50-Day Moving Average $79.41
200-Day Moving Average $65.29

(Source: “Zscaler, Inc. (ZS),” Yahoo! Finance, last accessed July 25, 2019.)

Third-Quarter Revenue Advances 61%

On May 30, Zscaler Inc announced that its third-quarter revenue, for the period ended April 30, 2019, advanced 61% year-over-year to $79.1 million. Its calculated billings were up 55% at $84.7 million, while deferred revenue grew 69% to $211.5 million. (Source: “Zscaler Reports Third Quarter Fiscal 2019 Financial Results,” Zscaler Inc, May 30, 2019.)

The company reported a net loss of $12.2 million, or $0.10 per share, versus a loss of $8.8 million, or $0.14 per share, in the same period last year. Zscaler reported adjusted net income of $7.4 million, or $0.05 per share, compared to an adjusted loss of $2.6 million, or $0.02 per share, in the third quarter of 2018.

Zscaler ended the third quarter with cash and cash equivalents of $352.7 million and the company remains debt free.

For the fourth quarter, Zscaler Inc expected total revenue of approximately $82.0 million, a year-over-year increase of 46% and adjusted earnings per share of $0.01 to $0.02, versus a loss of $0.01 in the fourth quarter of last year.

For fiscal 2019, total revenue is projected to climb 57.2% year-over-year to approximately $299.0 million, while adjusted earnings per share are forecast to come in at $0.17, compared to a loss of $0.13 in 2018.

Analyst Take

Zscaler Inc continues to report strong revenue growth and profitability. The company has been expanding its cloud capacity, adding new clients, and it has an active acquisition strategy.

That has helped Zscaler provide strong guidance, which should translate into ongoing capital gains from ZS stock for buy-and-hold investors.