What Happened:
Shares of cloud security platform Zscaler (NASDAQ:ZS) fell 5.59% in the afternoon session after competitor Microsoft introduced new products that could challenge its network and cloud security offerings. The products, called Microsoft Entra Internet Access and Microsoft Entra Private Access, are still in testing and have no pricing details yet. However, analysts said they could boost Microsoft's security business. Hamza Fodderwala of Morgan Stanley added that "This is potentially the largest and last major cybersecurity market that Microsoft has yet to enter and it is now competing with cloud network security providers, mainly ZS, NET, PANW." Although the details of the products are still murky, what is clear is that Microsoft has a massive install base of Office, Azure, server, and Dynamics customers into which they can easily cross-sell new products and take share from incumbents.
What is the market telling us:
Zscaler's shares are very volatile and over the last year have had 39 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 2 months ago, when the stock gained 16.5% on the news that the company pre-announced an impressive "beat and raise" quarter. Preliminary third-quarter results exceeded analysts' revenue, and operating income estimates. In addition, management raised full-year guidance for revenue, calculated billings, and operating income. Founder and CEO, Jay Chaudhry, added to the optimism, stating that "the high ROI of adopting the Zscaler Zero Trust Exchange platform continues to resonate with customers and prospects in this challenging macro environment."
Zscaler is up 25.4% since the beginning of the year, but at $138.10 per share it is still trading 28.7% below its 52-week high of $193.60 from September 2022. Investors who bought $1,000 worth of Zscaler's shares 5 years ago would now be looking at an investment worth $3,410.
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