https://seekingalpha.com/news/3498400-zscaler-minus-15-perce…
Revenue is not that much off from the guidance. Need to see how the earnings call goes.
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Here are the highlights The actual press release…
https://seekingalpha.com/pr/17628096-zscaler-reports-fourth-…
Zscaler (NASDAQ:ZS) falls 15.3% after Q4 beats with 53% Y/Y revenue growth felt pressure from lagging earnings guidance.
Q4 calculated billings grew 32% Y/Y to $125.8M. Deferred revenue was up 53% to $251.2M.
Cash from operations totaled $17.8M (last year’s quarter: $14.7M) and FCF was $7.6M (last year: $11.9M).
The mixed Q1 guidance has revenue of $89-90M (consensus: consensus: $87.6M) and EPS of $0-0.01 (consensus: $0.03).
The FY20 outlook sees revenue of $395-405M (consensus: $402.82M) and EPS of $0.12-0.15 (consensus: $0.20).
Earnings call starts at 4:30 PM ET with a webcast here.
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Wow…back to my average purchase price of $51 now AH. Didn’t see that one coming to be honest.
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The mixed Q1 guidance has revenue of $89-90M (consensus: consensus: $87.6M) and EPS of $0-0.01 (consensus: $0.03).
The FY20 outlook sees revenue of $395-405M (consensus: $402.82M) and EPS of $0.12-0.15 (consensus: $0.20)
Looks like a slight raise for first quarter guidance and no change for full year guidance.
Schwab has consensus estimates of $398 million for the 2020 full year.
But doesn’t ZS usually sandbag and beat?
Is this really a disappointment justifying a 15% haircut?
Dave
AYX current market cap of about $8 billion is already 1/3 of his calculation of TAM. Interesting metric to contemplate.
It may just be that the growth stocks are no longer a haven if WS believes Fed and China/trade and economy are going to be ok.
The markets were flat mostly feom early 2018 to recently…yet growth stock multiples expanded wildly as they were a haven due to lavk of impact of trade/fed on growth stocks execution.
So market is saying you cant have a 30 P/S if you are going to grow under 60% y/y.
ZS, if AH drop holds until open tomorrow, now has a lower mkt cap than ayx and mdb and almost even with estc. They allhave similar revenue run rates. Not crazy to see them being valued similarly now.
AYX had gotten ahead and pulled back, and now ZS finally returning to the still-expensive-but-more-sane 20’s P/S range.
I will buy more ZS in am, barring anything alarming in their CC, and if dip holds.
Bought ayx back today around 117, after selling it at 144 or so last week.
Dreamer
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I will buy more ZS in am, barring anything alarming in their CC, and if dip holds.
It’s now at $49 AH so I decided not to wait and added.
At that price, it’s enterprise value is now down to about $5.7 billion by my math. That would be an EV/S of about 19 times TTM revenues and 15 times current 2020 estimates but I would bet ZS is going to continue beating significantly. If ZS maintains at least 50% annual revenue growth, 2020 revenues will be at least $450 million which would give it an enterprise value of 13.6.
Seems worth a bet - it’s still only about 4% of my port.
Dave
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I just got done listening to the conference call and 2 things stood out to me (one bad, one good)
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Jay said that, “larger deals were taking longer to close.” He seemed to suggest that macro factors might be at play here. I was surprised to hear this because I thought that security issues were “mission critical” and would have to be addressed regardless of the economic situation.
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Jay absolutely and unequivocally refuted PANW’s claim from last week that they had taken two accounts from ZS. PANW seemed to be suggesting that some customers were dissatisfied with ZS. Given the vehemence with which Jay denied PANW’s claim, I believe Jay. Also, give that the $NRR was at 118, up slightly, it would suggest that customers are satisfied with ZS.
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2. Jay absolutely and unequivocally refuted PANW’s claim from last week that they had taken two accounts from ZS. PANW seemed to be suggesting that some customers were dissatisfied with ZS. Given the vehemence with which Jay denied PANW’s claim, I believe Jay. Also, give that the $NRR was at 118, up slightly, it would suggest that customers are satisfied with ZS.
PANW’s CEO used the word “displaced” ZScaler. It is an extremely inaccurate use of the word. What I believe what happened was that the customer had ZS and PANW bid on a new piece of business than neither had. PANW wound up winning. ZS never had the business.
PANW said one of the customers was a Fortune 50 retailer. There can only be so many of those. I’m sure ZS knows who it is, but obviously not going to say, “yeah, we had a chance at Kroger but they went with legacy PANW solutions instead.”
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So are you saying it is Kroger?
Kingran, no, it was an example. But the closest I can find store count wise is Lowes. The win was “more than 2000 locations”, while Lowes has 2002 locations. Home Depot has 2286 locations. Kroger has over 3000.
Lowes is number 42 on the Fortune 50. But not that it’s really all that important as to who it is. PANW is doubling down on their firewall and appliances. ZS continues to execute.
Jay talking about the sales are still “evangelist sales environment” is key. What this means is, the sales cycles take longer, more disruptive, difficult to break-through at enterprise customers, the products are not going to sell themselves, at least for now.
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A few observations:
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Later in the call Jay specifically said that he knew all the deals that have closed and No, they were not displaced by PANW. He seemed to say that PANW sold their legacy firewalls and might have offered their cloud solution for free. Would like to read the transcript.
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Back in Sep 2018 ZS guided to $255M and ended the year at $303M. If they beat by a similar amount we are looking at close to $440M. Note that almost all our stocks (except ESTC, SMAR) guided way lower.
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After the 20% hair cut ZS P/S of around 20 is the same as SMAR, MDB and lower than ESTC, AYX! Barring AYX it has a much better than expected balance sheet - operating profit, and cash flow than the rest. Relative to other stocks a combination of 2 FUDs (PANW, and other other analyst earlier) plus their seeming weak billings (32%) has caused the hair cut. In retrospect, I added yesterday a little too early. Maybe I need to get a hang of Dreamer’s market timing. Too bad when I try to be cute usually the stock rises… So, I will take it. It is already my second highest position.
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They commented in last qtr’s CC: • next quarter we’ll have a difficult comparison with a large public sector deal that closed in Q4, 2018. This deal added $16.5 million to billings and $26 million the backlog in the July quarter, which will pose a difficult year-over-year comparison in Q4.
So if we normalize the billings, the growing rate is close to 60% YOY. That’s $125.8/((95.4-16.5)
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The stock performance is nothing to do with what PANW CEO said. The word “displaced” is used in a context and people obsessing on that word is not required. The fact is the stock is down for a reason and that reason should be found in the earnings release of ZS and not in PANW earnings call.
I added yesterday a little too early
Never add before earnings. It is for bragging rights not to be done with real, hard-earned money.
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One thing that I tried to figure out is that, despite the assurances from several seasoned members on this board, including Saul himself, could the current crash really be a paradigm shift in the hyper growth space?
Some may point to last year’s selloff and how quickly these stocks bounced back. Last year was different from this time in some major ways.
First, last year the hyper growth stocks sold off together with the rest of the market, as trade war and Fed tightening scared the entire market. Well, with the Fed quickly changing its tune and trade war becoming a seesaw since then, the market as well as the hyper growth stocks both quickly recovered, and then some.
The bout of the last couple weeks happened largely in the absence of general market malaise – a rotation trade many say. Should the economy subsequently slow down further, as many think may happen, it’s hard to see the hyper growth stocks recovering anytime soon.
It’s nice to claim that we are investing for the long term, but if this sector remains depressed for extended time, it’s going to inflict a lot of pain, both financial and emotional, on a lot of investors.
Second, when these stocks started to sell off last year, the valuation overall were quite a bit lower than when the current selloff began. Some of the SaaS stocks still sport higher valuations even after the current selloff compared to last year. This makes snap back a more daunting task. Many stocks may now have to grow into higher price, not being able to count on multiple expansion.
The second point makes comparing with even earlier FUD selloffs troublesome, for those earlier periods saw multiples even lower than last year.
So the big question for the long term investors here is: where do you expect price appreciations in the coming months to come from? (It’s much easier to make the case if the horizon is longer, say over the next 3-5 years.)
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It’s nice to claim that we are investing for the long term, but if this sector remains depressed for extended time, it’s going to inflict a lot of pain, both financial and emotional, on a lot of investors.
If you believe this then you either are investing to much money at one time into these stocks, you cannot handle the volatility of this type of investing, or you are more a value investor. Either way you might want to find another board that better suits your temperament. This type of investing is not for everyone and for anyone that is scared or feeling pain for losing 20% of your portfolio, well that is only a small loss for this board.
Andy
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If you believe this then you either are investing to much money at one time into these stocks, you cannot handle the volatility of this type of investing, or you are more a value investor. Either way you might want to find another board that better suits your temperament. This type of investing is not for everyone and for anyone that is scared or feeling pain for losing 20% of your portfolio, well that is only a small loss for this board.
This is very OT so please do not reply to this message on the board.
I am actually none of the above (investing too much money, cannot handle such volatility, more of a value investor). Unfortunately, my spouse watches my investment frequently and is having a lot of difficulty emotionally with the portfolio’s volatility. Sigh.
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"So the big question for the long term investors here is: where do you expect price appreciations in the coming months to come from? (It’s much easier to make the case if the horizon is longer, say over the next 3-5 years.) "
For all we say in here, I don’t think anybody will be able to answer where the stock will be in the next few months. No one knows. No one.
The only thing we can see is that there is a sell off of this sector. The big moneys decided this sector has gone far enough for now and they want to move to the’value’ plays now. So that is what they do and the little guys just follow like lemmings. What can the little guys do? Say “Market, continue to buy my stocks!”? Will it listen?
That’s how the market goes.
Our focus should be how is the business doing and how will it do in the next few years.
tj
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I am actually none of the above (investing too much money, cannot handle such volatility, more of a value investor). Unfortunately, my spouse watches my investment frequently and is having a lot of difficulty emotionally with the portfolio’s volatility. Sigh.
That is great bashuzi, then you need to set down with your wife, put part of your portfolio into maybe some index funds and the rest into Saul’s stocks.
All you new posters have to realize that this board has been up for years and we all have been investigating companies and looking for great investments. We have been way up and way down but we just keep looking for better investments. We don’t cry when we lose and mostly we don’t brag when we are up. It’s the joy and fun of finding great companies to invest in. Those who have only been here for this year, we all were you, figure out why you feel uncomfortable with your investments and fix it. If you need some stocks that are dividends then invest in them but do not post them to this board. Also do not expect this board to hold your hand when the stocks are tanking. They are going to tank. Investigate why they are going down if their is a reason post it. If not do not sweat it, they will come back.
Learn from this board, investigate new companies and let’s just keep finding the best of the best.
Andy
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I did sell ZS today, at a loss, before earnngs.
Everything was not down today. A few of my longtime holds like CSCO AND APPL were up, but,it is a crazy,unpredictable market.
STJ