According to Zhitung Finance, Zscaler (ZS.US) announced its first-quarter results for the period ending October 31. Q1 revenue increased by 26.4% year-on-year to $0.628 billion, exceeding analysts' expectations of $0.606 billion. The company's net loss per share for the first quarter was $0.08, compared to a loss of $0.23 in the same period last year. The non-GAAP eps was $0.77, while the market expectation was $0.63.

With the increase in digital threats and high-profile hacking attacks, companies around the world are increasing their spending on cybersecurity solutions, which in turn benefits cybersecurity companies like Zscaler. According to Check Point, the increase in global cyber attacks in the second quarter of 2024 reached the highest level in the past two years.

Secondly, due to strong demand for cybersecurity services in the market, Zscaler raised its annual revenue forecast. Zscaler increased its revenue expectation for fiscal year 2025 from $2.6 billion-$2.62 billion to $2.62 billion-$2.64 billion. The company adjusted its annual eps expectation to $2.94-$2.99, previously guided at $2.81-$2.87.

However, Michael Ashley Schulman, chief investment officer of Running Point Capital Advisors, stated that Zscaler's revenue forecast for the second quarter is in line with Wall Street's expectations, but the earnings guidance failed to satisfy investors. Due to disappointing results, the company's stock price fell more than 6% in pre-market trading. The company expects second-quarter revenue between $0.633 billion and $0.635 billion, according to data compiled by LSEG, while analysts expect $0.6338 billion; the non-GAAP eps is expected to be 68-69 cents, slightly below the market expectation of 70 cents.

Focus on ai business, strong orders.

Zscaler's product portfolio includes key products such as Zscaler Internet Access (ZIA) and Zscaler Private Access (ZPA). The company has been actively expanding its emerging product suite, with a particular focus on ai-driven solutions, integrating ai into Zscaler's global strategy, which is expected to be an important driver of future growth. The company is positioning itself to capitalize on the growing demand for protecting ai applications and data, representing a significant opportunity in the evolving cybersecurity landscape.

Zscaler emphasizes platform integration and showcases strong return on investment(ROI), which is particularly important in the currently challenging macroeconomic environment. This approach effectively meets the needs of enterprise customers for comprehensive and cost-effective security solutions.

Zscaler focuses on integrating ai into its product portfolio, placing the company at the forefront of major trends in cybersecurity. As organizations increasingly adopt ai and machine learning technologies, the demand for specialized security solutions to protect ai applications and data is rapidly growing. Zscaler's ai-driven security products may become a key differentiator in the market.

As a result, the company's current remaining performance obligations (cRPO) booking volume has seen a significant rebound, growing by 20% despite challenges compared to previous periods. The growth in cRPO is seen as a strong indicator of Zscaler's healthy demand and future revenue potential.

In the SASE market, Zscaler continues to gain momentum and solidify its leadership position. The company focuses on expanding its product offerings and cross-selling opportunities, contributing to its strong market position. Analysts expect Zscaler's growth rate to remain around 20% by fiscal year 25, with contract billing in the second half of the year expected to grow by 23%.

Intense competitive pressure.

Zscaler faces fierce competition in the cybersecurity industry from larger competitors such as palo alto networks (PANW.US), which reported strong quarterly results last month. Zscaler also highlighted its recent integrations with cybersecurity companies crowdstrike (CRWD.US) and okta (OKTA.US), as well as the appointment of Adam Geller as chief product officer. Before joining SIEM and Exabeam, Geller helped palo alto networks launch and scale multiple product lines.

While Zscaler currently holds a strong position in the SASE market, the rapidly evolving cybersecurity environment presents ongoing competitive challenges. As the SASE market continues to grow and attract attention, both mature security vendors and newcomers are increasingly focused on this area, potentially intensifying competition.

Zscaler's competitors may develop similar or alternative technologies that could be more attractive or cost-effective for customers. The company's success largely depends on its ability to continually innovate and stay ahead of market trends. If Zscaler cannot maintain its technological advantage or competitors successfully replicate its products, it may lead to erosion of market share and pricing pressure.

As businesses increasingly seek comprehensive security solutions, larger and more diversified cybersecurity companies may leverage their broader product portfolios and established customer relationships to gain an advantage over zscaler. This could slow down zscaler's growth rate and impact its ability to maintain a leadership position in the SASE market.

Additionally, the federal business in the usa remains a stable segment for zscaler, despite its relatively small share of total revenue. The company is monitoring potential risks associated with government cost-cutting that may affect the industry.

CFO changes bring execution risks.

For zscaler, a notable development is the announcement of retirement by chief financial officer Remo Canessa, who has worked at the company for 8 years. Canessa's departure comes at a critical juncture for zscaler's trajectory, and the company has already begun searching for his successor to ensure a smooth transition.

In addition to the personnel changes at the chief financial officer level, zscaler has also adjusted its go-to-market (GTM) leadership team. These new appointments are expected to enhance the company's ability to sell products to executives and drive further growth. While leadership changes have occurred, zscaler still faces some short-term execution risks. The company's guidance for fiscal year 25 implies that billing growth will significantly accelerate in the second half of that fiscal year, raising some concerns among analysts about the company's ability to achieve these ambitious goals.

Canessa has been guiding zscaler through an important growth phase, including its initial public offering and subsequent expansion. His departure coincides with a crucial moment as the company is expected to see accelerated revenue growth in the second half of fiscal year 25. Appointing a new chief financial officer may disrupt the continuity of financial planning and execution, especially if there is a gap between Canessa's departure and the successor's appointment. The new chief financial officer may need time to fully grasp zscaler's complex business model and market dynamics, which could lead to temporary inefficiencies or adjustments in financial strategy.

Furthermore, the timing of this leadership change coincides with zscaler's ambitious growth targets, requiring precise execution to achieve the fiscal year 25 forecasts. Any missteps in financial management during this transition period could impact investor confidence and the company's ability to meet its guidelines.