Revenue >255M (for >62% YoY growth, this would be a deceleration to 10.6% QoQ growth compared to 17% QoQ growth in Q1; if they were to maintain QoQ growth in the region of 15% then that would be a revenue of 265M which would be 69% YoY!)
Cal Billings >395M (70% YoY which is in line with last 4 quarters)
Deferred rev >758M (70% YoY which is in line with last 4 quarters)
Non GAAP GM >80%
NRR >126%
FCF >90M (FCF Margin > 35%) (I am a bit unsure about this metric because FCF has not been very consistent; in Q1 they reported a record FCF margin of 36% - is it unreasonable to expect them to maintain this level for FCF Margin?)
Non GAAP net income > 24M (which would be 9.5% of revenue, which is in line with Q1)
(I hope that Daws will post his usual “Earnings expectations” post; I find it useful to see if my expectations are in line with others)
Don’t compare this q’s QoQ with the recent ones. This seems to be their weakest quarter. Last year’s was 10.10%, the one before that was 8.23%. Note in both cases, the quarters before and after were higher; last year by over 2% after and over 3% before.
Also, the 255 number will be in line with the lowest beat (5.4% from 2 quarters ago) they’ve had over the past 5 quarterly reports. Last report was their highest beat (8.73%).
I agree on Q4 and thus my expectations are for min. 254-255, in line with what the OP posted.
In terms of operational metrics, we were told during the last EC that ZS would invest more in itself in 2022 than originally planned. So this, too, needs to be taken into account.
I also agree on Daws’ posts being particularly useful!
ZScaler is reporting after closing today. I’ve found it good practice to document my expectations in advance, so I know how to quickly react to earnings. Price action is often swift, so I want to take advantage of after hours trading. Posting it here in case anyone finds it helpful or has meaningful disagreement and rationale around why my expectations may be off base. I like to track and predict the metrics that the company include in the press release as “important” numbers. For ZScaler this is Revenue Growth, Free Cash Flow (aFCF), non-GAAP Gross Margins (aGM), and Deferred Revenue.
Last quarter ZScaler wowed the market with a big beat. Expectations should be kept in check this quarter, as historically it is a seasonally lower growth quarter. I’m expecting sequential growth to exceed the sequential growth shown in F21 Q2 (10%). So I will be using 11% as my low bar to meet expectations. I certainly don’t expect another 17% sequential growth quarter and anything above 15% would be very surprising - in a very good way. Gross margins have been very stable around the 81% mark and that shouldn’t change. Free cash flow does tend to fluxuate and my expectation is to see a dip from last quarter here. Deferred revenue is one I’ll be keeping a close eye on, due to a very modest growth last quarter. I’m expecting a big jump in the deferred revenue similar to F21 Q2.
We should expect conservative Outlook guidance around 5% above the reported revenue and raised fiscal year guidance above 1.06B. I’ll reiterate what I’ve said in prior posts that I don’t put much weight on the Outlook numbers given the games that are played. I will add a quote from the first quarter report that shows management’s confidence in their direction: “We recently achieved a significant milestone of surpassing $1 billion in annual recurring revenue (ARR), and are now focusing on achieving $5 billion in ARR.”
See link below to Income Statement with quarterly results for past 10 quarters.
Q3 takes management’s forecast of $272m and pads it by about 6% - which is roughly the amount they beat guidance this past quarter. Admittedly, it’s potentially meaningless but gives a rough idea of the trend.
Just in case you haven’t been looking, ZS just posted its highest revenue growth in the 22 quarters that I have a record for (back to the Oct 2016 quarter), at 63% (except for once that they hit 65% three years ago.
It’s currently down from $263 to $214 in the aftermarket, in case you might like to join me in adding some. Talking about a stupid market reaction!
The relationship between the economy and the stock market is like a man walking his dog to a park. When they walk together, the dog runs around randomly. Sometimes the dog runs in front of the man, sometimes behind the man. When they got to the park, the man had walked a mile, but the dog ran four miles.
Can I predict where the dog will go tomorrow, or even next month? No, I can’t. But I see that the man is doing well. Therefore, as an investor, I choose to ignore the noise and continue putting my money on the man, not the dog.
Nothing has changed in my thesis about Zscaler. Nice numbers ( though I’n not a numbers guy) and I’m not focussing on those for a quarter as I intend to hold this best of the breed Cloud Native Network Security provider for many more years.
Infact my conviction is stronger now. Those who are selling don’t get how Security is evolving and where it’s headed.
I took advantage and added a little After Hours to my already 18% position at around $215
I also think the results are good enough to take advantage of the after hours, and went in at 218.
Anything could happen tomorrow, there’s all sorts of impacts on the markets these days, but I’m quite confident that this price will be a good one in retrospect.
The bold numbers were the recent two quarters’. It shows an apparent slowdown of new customer growth in this cohort in the last two quarters, not only from percentage perspective, but also in terms of the absolute number of new additions. When I noticed this in Q1 report, I was thinking that it might be due to seasonality. However, the Q2 result seems to be telling that the slowdown could be real.
That’s true - strictly speaking that one metric is a slowdown. But man oh man in the context of everything else, isn’t this an overzealous focus on minutiae to the extent that it prevents you from seeing the forest for the trees?
Revenue growth, cash generation, positioned in a micro trend with plent-y of room to run… with a strong balance sheet …
I don’t know what the price will do tomorrow. Or next week for that matter. But there is NOTHING here to dampen my enthusiasm for ZS as a component of a concentrated portfolio.
In fact, I’m emboldened by this report as it pertains to S, and even some non-board favorites CRWD and OKTA.
“…Nothing has changed in my thesis about Zscaler. Nice numbers ( though I’m not a numbers guy) and I’m not focussing on those for a quarter as I intend to hold this best of the breed Cloud Native Network Security provider for many more years…”
Please don’t get me wrong. What I mean is I’m not an expert in numbers/finances. Numbers are equally important as the tech and I do keep an eye on red flags.
However, I’m think I’m an expert on software; having written software code for 20+ years now. And for products & services that are being used by millions of users in the world. e.g. Windows, Azure DevOps, Xbox & others
That’s true - strictly speaking that one metric is a slowdown. But man oh man in the context of everything else, isn’t this an overzealous focus on minutiae to the extent that it prevents you from seeing the forest for the trees?
Revenue growth, cash generation, positioned in a micro trend with plent-y of room to run… with a strong balance sheet …
I don’t know what the price will do tomorrow. Or next week for that matter. But there is NOTHING here to dampen my enthusiasm for ZS as a component of a concentrated portfolio.
In fact, I’m emboldened by this report as it pertains to S, and even some non-board favorites CRWD and OKTA.
Well, Zscalar has a huge amount of RPO and they added the biggest gain of PRO in 21Q4. The reason why you see record revenue growth despite user growth slow down is because of the strong PRO they accumulated in the past. If the customer growth keeps slowing down, you will start to see revenue growth slow down as well in two quarters after 21Q4 result stops impacting the YoY comparison.
But ZS just posted very impressive RPO Growth this quarter. 90.2% YoY growth / 14% QoQ (71% annualized). wouldn’t it support sustained revenue growth in future growth? the (possible) deceleration in 100k+ customer is more than offset by the very strong growth in 1M+ customers which I assume is what drives that RPO number
