Hope for Zscaler

I am starting this off with the truism that I do not invest in hope. I won’t be back in Zscaler unless it become too irresistible to not be in, and it is not hope as the quality that draws me there. But that is where Zscaler currently stands. It is running on hope, bu it is not so cheap as to be irresistible (and of course when I used the term “cheap” it is a term of art a Tinkerism so to speak).

Here is the hope, and it is simple, and that is Zscaler simply did not have enough sales people or process to educate the customer base. Remember when Chaudry was “they are coming to us!” The “Pipeline is growing!”

Fine, fine, what that means, like Atlassian is the miracle example of, is the product was selling itself without a sales staff. Selling on referrals for example. GE puts Zscaler in, an IT exec goes to company Y, and he convinces company Y when security issues come up that they need Zscaler and so on.

It is also organic viral growth like with AYX where they make a land, small land, and the product booms virally throughout the organization with little help from the sales team.

NOTE: Despite this AYX never relented on their Salesforce like ZS did. But you can see how it might cause a prudent CEO to think his product was selling itself and thus minimal sales force was needed. That CEO would be wrong of course, and certainly was, but you can see the problem and why one might make that mistake.

Well, they stopped “coming to us” and yet the pain points that Zscaler solves still exist, and Zscaler is still the best solution to fix the problems and more.

If that is simply what the problem is, more forceful and persuasive sales people need to educate the industry, then the sales force transformation may work wonders in a year or so.

However, if the issues are more than just customers not being educated and listening to the Palo Alto’s of the world propaganda, then the problem runs much deeper and it may not be until 5G becomes mainstream that ZS gets their chance again.

I honestly don’t know. That is why I say it is hope, and I don’t invest in hope. But if one does, there is reason why hope exists here for Zscaler. They are still cash flow positive. They still have the best technology out there, and their solution is elegant and very disruptive. But is the industry ready to let go ad adopt it by the tens of thousands of enterprises? Presently it seems as if Zscaler cannot even sell to 100 new enterprises a quarter (although the number was not touched on at all at this earnings call).

So why I am not buying into Zscaler simply based on this crash, but why there is still hope, and why I will still follow Zscaler.

And now, after digging into things for expanding my own business (virally I hope) and getting this off my chest, I shall find more frivolous things to ponder.



Can’t disagree with anything you said. I would be totally out of ZS except that I think that Rajic is an experienced professional whose primary compensation going forward is going to be many shares of this company. If he thought that ZS was a sinking ship, he never would have signed on. Of course he may be arrogant and/or overly confident in his ability. I hope* that isn’t the case.

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Here is the hope, and it is simple, and that is Zscaler simply did not have enough sales people or process to educate the customer base.

It’s not only having enough sales people, it’s having the right ones running the business. It looks like zscaler has brought in some people from App Dynamics/BMC Software/BladeLogic during the second half of 2019 that should have a significant impact.

The primary reason that they will do so is that they have extensive experience selling to large enterprises using a focused, highly-successful sales process with which they’ve had success throughout their careers. These are the same kind of people that are currently working for MDB in sales leadership positions.

Not that it’s so relevant to this thread, but I sold ? of my shares on Friday and am keeping the rest. It’s now only about 2% of my portfolio. Thanks to the great people on the boards for keeping me from having a much larger position. I expect ZS will show much better execution within 6 to 12 months, at which time time I want to be ready to get back in. Once they get this right, they should kill it. It usually takes about a year for key sales executives to have a significant impact on the business.

As Saul has done, I am putting this money into AYX, CRWD & DDOG and hope to get more MDB at a lower price. Barring any unforeseen events, we may get another 20%-30% from these companies over the next 2 quarters. Most of it will go into AYX, although it’s my largest position and almost 19% of my portfolio. MDB makes up over 14% and CRWD and DDOG together make up only 5% of my portfolio.