Zscaler: Still Facing Macro Uncertainty

Jul. 11, 2023 9:32 AM ET Zscaler, Inc. (ZS)

Summary

• Zscaler’s stock has performed well recently, but the company continues to face a soft demand environment, increasing downside risk.
• The company is a leader in network security, but competition is increasing, and assessing the long-term winners is difficult.
• Data Loss Protection in particular appears to be a question mark for Zscaler. This is an area that is receiving increased attention at the moment due to generative AI applications.

Introduction

Zscaler is a cloud-based security company that provides a wide range of security services, including cloud access security broker (CASB), firewall as a service (FWaaS), and zero trust network access (ZTNA). The company was founded in 2007 by Jay Chaudhry and serves over 15,000 customers in over 185 countries.

Business Overview

Zscaler’s cloud-based security platform provides a number of benefits, including:

• Scalability: Zscaler’s platform is scalable to meet the needs of businesses of all sizes.
• Security: Zscaler’s platform uses a variety of security technologies to protect businesses from cyberattacks.
• Performance: Zscaler’s platform is designed to deliver high performance, even with high volumes of traffic.
• Cost-effectiveness: Zscaler’s platform is cost-effective, as businesses only pay for the services they use.

Financial Performance

Zscaler has been growing rapidly in recent years. In 2022, the company generated $2.07 billion in revenue and $600 million in net income. Zscaler’s free cash flow was $577 million in 2022.

Investment Thesis

Zscaler is a well-managed company with a strong track record of growth. The company has a number of growth drivers, including the increasing adoption of cloud computing, the growing threat of cyberattacks, and the increasing demand for security services. Zscaler also has a large cash hoard, which it can use to invest in growth or return capital to shareholders.

Risks

There are a number of risks associated with investing in Zscaler. These risks include the company’s dependence on cloud computing, the competitive landscape, and the regulatory environment.

Conclusion

Zscaler is a good investment for long-term investors. The company has a strong track record of growth, and it has a number of growth drivers. However, investors should be aware of the risks associated with investing in Zscaler.

Additional Thoughts

In addition to the points mentioned in the article, I would also add that Zscaler is a very innovative company. The company is constantly developing new products and services, and it is always looking for ways to improve its existing offerings. I believe that this innovation will be key to Zscaler’s continued growth in the years to come.

I would also add that Zscaler is a very well-managed company. The company has a strong leadership team with a track record of success. I believe that this management team will be able to continue to grow Zscaler and deliver value to shareholders.

Overall, I believe that Zscaler is a good investment for long-term investors. The company has a strong track record of growth, it is very innovative, and it is well-managed. However, investors should be aware of the risks associated with investing in Zscaler.

Macroeconomic Challenges

As mentioned in the article, Zscaler is facing some challenges in the current macro environment. The war in Ukraine, rising inflation, and the potential for a recession are all creating uncertainty for businesses, and this is impacting Zscaler’s growth.

Impact of Macroeconomic Challenges

The macroeconomic challenges are having a number of impacts on Zscaler, including:

• Slower revenue growth: Zscaler’s revenue growth slowed in the most recent quarter, and the company’s guidance for the current quarter was below expectations.
• Lower customer acquisition: Zscaler is seeing lower customer acquisition due to the uncertainty in the market.
• Increased churn: Zscaler is seeing increased churn from customers who are looking to reduce costs.

Impact on Long-Term Prospects

The macroeconomic challenges are a short-term headwind for Zscaler. However, I believe that the company’s long-term prospects are still strong. The company is well-positioned to benefit from the long-term trend of cloud adoption, and I believe that the company will be able to overcome the current challenges and continue to grow in the years to come.

Conclusion

Zscaler is a good investment for long-term investors. The company has a strong track record of growth, it is well-positioned to benefit from the long-term trend of cloud adoption, and I believe that the company will be able to overcome the current challenges and continue to grow in the years to come. However, investors should be aware of the risks associated with investing in Zscaler, including the company’s dependence on cloud computing, the competitive landscape, and the regulatory environment.

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