Cloud security platform Zscaler (NASDAQ:ZS) reported Q1 FY2022 results topping analyst expectations, with revenue up 61.6% year on year to $230.5 million. Guidance for next quarter's revenue was surprisingly good, being $241 million at the midpoint, 6.84% above what analysts were expecting. Zscaler made a GAAP loss of $90.8 million, down on its loss of $55 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) Q1 FY2022 Highlights:
- Revenue: $230.5 million vs analyst estimates of $212.2 million (8.59% beat)
- EPS (non-GAAP): $0.14 vs analyst estimates of $0.12 (15.3% beat)
- Revenue guidance for Q2 2022 is $241 million at the midpoint, above analyst estimates of $225.5 million
- The company lifted revenue guidance for the full year, from $945 million to $1 billion at the midpoint, a 6.34% increase
- Free cash flow of $83.3 million, up from $27.7 million in previous quarter
- Gross Margin (GAAP): 77.3%, in line with same quarter last year
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.
Companies are moving to cloud-based solutions like Zscaler because they offer better performance and are typically cheaper than maintaining the traditional on-premise solutions, which often include buying specialized hardware. But the biggest advantage of using cloud-based solutions is that they work on any device, in any location, which is becoming more important as the workforce becomes more distributed and employees don’t only work from their office anymore.
Sales Growth
As you can see below, Zscaler's revenue growth has been exceptional over the last year, growing from quarterly revenue of $142.5 million, to $230.5 million.
This was another standout quarter with the revenue up a splendid 61.6% year on year. On top of that, revenue increased $33.4 million quarter on quarter, a very strong improvement on the $20.6 million increase in Q4 2021, and a sign of re-acceleration of growth, which is very nice to see indeed.
Analysts covering the company are expecting the revenues to grow 35.8% over the next twelve months, although estimates are likely to change post earnings.
There are others doing even better than Zscaler. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.
Profitability
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 77.3% in Q1.
That means that for every $1 in revenue the company had $0.77 left to spend on developing new products, marketing & sales and the general administrative overhead. 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. It is good to see that the gross margin is staying stable which indicates that Zscaler is doing a good job controlling costs and is not under a pressure from competition to lower prices.
Key Takeaways from Zscaler's Q1 Results
Sporting a market capitalization of $49.3 billion, more than $1.58 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 very optimistic revenue guidance provided for the next quarter. And we were also excited to see the really strong revenue growth. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 3.55% on the results and currently trades at $360 per share.
Zscaler may have had a good quarter, so should you invest 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.