Zscaler (NASDAQ:ZS) Q4 Sales Beat Estimates, Stock Soars

Petr Huřťák /
2022/09/08 4:15 pm EDT
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Cloud security platform Zscaler (NASDAQ:ZS) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 61.3% year on year to $318 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $340 million at the midpoint, 4.24% above what analysts were expecting. Zscaler made a GAAP loss of $97.6 million, down on its loss of $81 million, in the same quarter last year.

Is now the time to buy Zscaler? Access our full analysis of the earnings results here, it's free.

Zscaler (ZS) Q4 FY2022 Highlights:

  • Revenue: $318 million vs analyst estimates of $305.5 million (4.09% beat)
  • EPS (non-GAAP): $0.25 vs analyst estimates of $0.21 (21.5% beat)
  • Revenue guidance for Q1 2023 is $340 million at the midpoint, above analyst estimates of $326.1 million
  • Management's revenue guidance for upcoming financial year 2023 is $1.49 billion at the midpoint, beating analyst estimates by 1.51% and predicting 37% growth (vs 62% in FY2022)
  • Free cash flow of $74.7 million, up 70.9% from previous quarter
  • Gross Margin (GAAP): 78.5%, up from 76.9% same quarter last year

"We delivered outstanding results for the fourth quarter with 61% revenue growth and 57% billings growth year over year, while driving operational efficiency across the company and delivering on Rule of 80 for the quarter and for the full year," said Jay Chaudhry, Chairman and CEO of Zscaler.

After successfully selling all four of his previous cybersecurity companies, Jay Chaudhry's fifth venture, Zscaler (NASDAQ:ZS) offers software as a service that helps companies securely connect to applications and networks in the cloud.

Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks. The migration of businesses to the cloud and employees working remotely in insecure environments is increasing demand modern cloud-based network security software, which offers better performance at lower cost than maintaining the traditional on-premise solutions, such as expensive specialized firewall hardware.

Sales Growth

As you can see below, Zscaler's revenue growth has been incredible over the last year, growing from quarterly revenue of $197 million, to $318 million.

Zscaler Total Revenue

This was another standout quarter with the revenue up a splendid 61.3% year on year. Quarter on quarter the revenue increased by $31.2 million in Q4, which was roughly in line with the Q3 2022 increase. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates Zscaler is expecting revenue to grow 47.4% year on year to $340 million, slowing down from the 61.6% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.49 billion at the midpoint, growing 37% compared to 62% increase in FY2022.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Zscaler's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 78.5% in Q4.

Zscaler Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is a good gross margin that allows companies like Zscaler to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Zscaler's Q4 Results

Sporting a market capitalization of $20.9 billion, more than $1.73 billion in cash and with positive free cash flow over the last twelve months, we're confident that Zscaler has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Zscaler delivered this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, the revenue guidance for next year indicates a significant slowdown. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 6.35% on the results and currently trades at $164.33 per share.

Should you invest in Zscaler right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.