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Zscaler (NASDAQ:ZS) Reports Strong Q4, Provides Optimistic Guidance For Next Quarter


Jabin Bastian /
2021/09/09 4:10 pm EDT
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Cloud security platform Zscaler (NASDAQ:ZS) reported strong growth in the Q4 FY2021 earnings announcement, with revenue up 56.5% year on year to $197 million. Zscaler made a GAAP loss of $81 million, down on its loss of $49.5 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 FY2021 Highlights:

  • Revenue: $197 million vs analyst estimates of $187.4 million (5.13% beat)
  • EPS (non-GAAP): $0.14 vs analyst estimates of $0.09 ($0.05 beat)
  • Revenue guidance for Q1 2022 is $211 million at the midpoint, above analyst estimates of $199.8 million
  • Management's revenue guidance for upcoming financial year 2022 is $945 million at the midpoint, predicting 40.3% growth (vs 49.1% in FY2021)
  • Free cash flow of $27.7 million, down 50.3% from previous quarter
  • Gross Margin (GAAP): 76.9%, down from 77.9% previous quarter


"We delivered outstanding results for the fourth quarter, with a record number of large deals across diverse sectors driving 57% revenue growth and 70% billings growth year over year, finishing the fiscal year with strong business momentum," said Jay Chaudhry, Chairman and CEO of Zscaler.

Founded in 2007 by Jay Chaudhry, 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 $125.8 million, to $197 million.

Zscaler Total Revenue

This was another standout quarter with the revenue up a splendid 56.5% year on year. On top of that, revenue increased $20.6 million quarter on quarter, a solid improvement on the $19.3 million increase in Q3 2021, and happily, a slight re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 34.5% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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, licences, technical support and other necessary running expenses was at 76.9% in Q4.

Zscaler Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still 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

With a market capitalization of $38.4 billion, more than $1.5 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

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, there was a deterioration in gross margin. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 2.02% on the results and currently trades at $285.99 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.