Key Takeaways
- Q4 adjusted earnings per share reached $1.19, surpassing analyst expectations of $1.09, while revenue hit $898.2 million against a $927 million consensus
- Year-over-year revenue expansion of 25% accompanied by a robust 77% gross profit margin
- First quarter FY2027 revenue outlook of $935-$939 million exceeded Wall Street’s $927 million projection
- Shares gained 5% in Thursday’s after-hours session before retreating 3.4% during Friday’s premarket trading
- Analysts remain optimistic: JPMorgan maintains Overweight with $215 target; Stephens increases target to $225
Despite delivering solid earnings results and upgrading forward guidance, Zscaler faced an unexpected market reaction. This paradox captures the current sentiment surrounding ZS shares.
The cloud security provider announced fourth quarter adjusted earnings of $1.19 per share, marking a significant increase from 89 cents in the same period last year and exceeding Wall Street’s $1.09 projection. Quarterly revenue for the period ending July 31 totaled $898.2 million, representing a 25% year-over-year surge and topping the $877 million consensus forecast.
Share prices initially surged 5% to $186.27 during Thursday’s extended trading hours before momentum reversed. During Friday’s premarket session, ZS declined 3.4% after finishing Thursday’s regular trading at $177.80.
The company’s annual recurring revenue climbed to $3,771 million, surpassing consensus projections by $26 million and representing a 25% annual growth rate.
Management upgraded its first quarter FY2027 revenue forecast to $935-$939 million, exceeding Wall Street’s $927 million expectation. The company’s EPS outlook of $1.15-$1.16 for the upcoming quarter also topped the analyst consensus of $1.08.
Wall Street’s Response
JPMorgan maintained its Overweight stance with a $215 price objective, highlighting that the revenue and ARR beats represented the strongest performance witnessed throughout the year. The investment firm characterized the updated forecasts as reasonably conservative.
Stephens elevated its price objective to $225. Needham increased its target to $215. Stifel affirmed a Buy recommendation with a $200 price goal. Scotiabank also bumped its target to $200, emphasizing the improvement in new ARR growth. Canaccord Genuity preserved its Buy rating alongside a $210 target.
Following last quarter’s guidance disappointment that shook shareholder confidence, this quarter’s solid performance was viewed as a positive development.
Understanding ZS’s Market Position
Year-to-date, ZS has declined 21%, contrasting sharply with competitors CrowdStrike and Palo Alto Networks, which have surged 83% and 80% respectively.
Market participants have expressed concerns about artificial intelligence potentially rendering conventional security solutions obsolete. Zscaler countered this narrative, emphasizing that AI-powered threats are actually amplifying demand for its infrastructure solutions.
Management disclosed a 3% workforce reduction while announcing the successful hiring of two senior sales leadership positions. Canaccord noted that FY2027 projections might be deliberately cautious due to the continuing sales organization restructuring.
According to InvestingPro’s assessment, ZS appears undervalued at present levels when compared against its calculated fair value.
The most recent Friday premarket stock price stood at $171.65, reflecting a decline of $6.15 or 3.46%.
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