I don’t know if anyone still follows ZS anymore, but I’m still holding a small position. They reported Q1FY21 today. Shares closed at $146.79, but the bid shot up to $164.60 A/H.
Press Release: https://ir.zscaler.com/static-files/849d02b5-34d6-4385-bd9e-…
Q1 Summary Results
In millions except EPS.
**Fiscal Quarter: Q1/FY20 Q2/FY20 Q3/FY20 Q4/FY20 Q1/FY21**
Revenue $94 $101 $111 $126 $143
Gross Profit $74 $81 $86 $95 $111
Net Loss -$17 -$29 -$19 -$50 -$55
**Non-GAAP**
Gross Profit $8 $8 $9 $10 $12
Net Income $5 $13 $10 $12 $20
EPS $0.04 $0.10 $0.07 $0.08 $0.14
They estimated Q2 EPS at $0.07 to $0.08, sales at $146M to $148M.
ZS may not be growing as impressively as other high conviction positions, but shares are up 215% YTD, so it has rewarded shareholders handsomely.
53 Likes
Thanks for posting this. I agree - still worth following. Their growth is holding up very impressively and the share price is doing nicely. I sold my ZS to switch into Crowdstrike and whilst Crowdstrike is growing faster and is arguably a stronger positioned play, in Share Price terms there’s not a lot on it.
Ant
Yes still following ZS here. Holding ZS since $39 in 2018 and it’s been a bumpy ride ever since. Happy to still be keeping the shares, numbers looked good!
Paul
I scratch my head when I see the Zs stock price go up on such numbers when Cloudflare has all the functionality and more with a 30 minute o boarding.
Muji-
Both Zscaler and Cloudflare provide services that protect all traffic end-to-end across the entirety of their global edge network. Traffic from endpoints securely enter their global network and are now able to be protected all the way to the final destination (SaaS service, internal APIs, etc), then back again. They are protecting both outgoing requests (from a customer’s users to the SaaS services they utilize), and incoming requests (from a customer’s customers or workforce to the internal services they utilize).
Cloudflare has their Argo Tunnel product to bring their edge network all the way into your data center (protecting the edge-to-origin above). Their Magic Transit product goes a step further, and brings Cloudflare’s platform directly onto your enterprise network. They then added another product, Cloudflare Access, to protect incoming traffic, allowing users to safely access a company’s origin server, regardless of where it lives (in the cloud or an on-prem data center). This is accomplished through Zero Trust capabilities they have built, which are possible due to the software-defined networking architecture they’ve adopted.
Using those software tunnels, the only unprotected part left was the Last Mile between the endpoint (requesting device) to the nearest edge server. So Cloudflare then created a Secure Web Gateway (SWG) product called Cloudflare Gateway, to protect the traffic from the endpoint making requests to the SaaS services that an enterprise uses. Between outgoing traffic production in Gateway and incoming traffic protection in Access, Cloudflare now offers end-to-end protection of network traffic for an enterprise’s users.
If this combo sounds familiar, it is because this is entirely what Zscaler (ZS) has built. They protect outgoing traffic from endpoints to external servers (ZIA, their Secure Web Gateway) and incoming traffic from endpoints to origin servers (ZPA, their Zero Trust secure access method). Cloudflare evolved their Gateway and Access products into a new competiting platform called Cloudflare for Teams. [See more details on Cloudflare for Teams in my Cloudflare deep dive from March
Please tell me what I’m missing.
Jason
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Jason,
Believe it’s because of ZS’s accelerating rev growth. If they keep the same sequential growth of 17m for next quarter, they will be at 58% YoY. Add another couple of million (to +19m sequential growth) and they’ve accelerated to 60% growth. Both NET and ZS are now valued at about the same, with similar growth rates and similar revenue run rate, but ZS has higher profitability (for now)
Muji brings great value to the board, but sometimes diving too deep into company product lines and knowing too much about the tech and its alternatives can work against your investment judgment. It doesn’t matter if a competitor has your product line if you continue to gain customers for your package suite (think about how many replicas Amazon has for e.g. MongoDB, Elastic, Etsy, etc. Those companiess stocks all had massive initial adverse reactions but then it became clear Amazon copy adoption was not preordained). All the matters is how a business is doing. My take is that companies look at Cloudflare strictly for specific business purposes and end to end traffic protection currently is not one of them.
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