ZScaler Earnings

– Revenue grows 48% year-over-year to $93.6 million
– Calculated billings grow 37% year-over-year to $88.3 million
– Deferred revenue grows 49% year-over-year to $245.9 million
– GAAP net loss of $17.1 million compared to GAAP net loss of $7.6 million on a year-over-year basis
– Non-GAAP net income of $4.1 million compared to non-GAAP net income of $2.3 million on a year-over-year basis
– $21M in Free cash flow


Great numbers.
Guidance is also raised for the whole year on revenue from 350M-405M to 405M - 413M, slightly revised earnings from 12c to 15c to 13c to 15c. Overall looks solid to me. I think the market should react favorably tomorrow.


The market doesn’t like it at the moment since it’s dropped by about 6%.
The conference call will help (hopefully) but from a casual glance then net losses (non-GAAP) increased so that might explain the reaction.


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Doh! I meant GAAP, not non-GAAP. :frowning:

I don’t put any credence into the earnings maneuvers after hours here. All the sass have shown wacky shenanigans. Take a look at what happened to Coupa today. if some big fun decided it was in their best interest to sell out of position to offset profits for tax reasons, then you’re going to see all sorts of wacky things right now.


I believe those are GAAP numbers, not Non-GAAP.

Non-GAAP net income was reported as $4.1 million, compared to non-GAAP net income of $2.3 million on a year-over-year basis.

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– $21M in Free cash flow

The CFFO was $21.4M. FCF was $9.4M.



Is this seeking alpha article wrong is reporting weak q2 guidance?

Is this seeking alpha article wrong is reporting weak q2 guidance?

Not sure. It is reasonable to expect $104M next quarter based on prior beats which would give us 40% growth. I guess it is up to everyone to draw their own conclusions from there.


Calculated billings:

Q2 FY18: up 49%
Q3 FY18: up 73%
Q4 FY18: up 72%
Q1 FY19: up 56%

Q2 FY19: up 74%
Q3 FY19: up 55%
Q4 FY19: up 32%
Q1 FY20: up 37%

That’s a slow down, hard comps or not. If it is a leading indicator, it doesn’t seem that the recent revenue growth trend will get better:

Q2 FY19: up 65%
Q3 FY19: up 61%
Q4 FY19: up 53%
Q1 FY20: up 48%

That’s pretty severe slowing growth, folks. Not sure how else you could interpret it.



That’s pretty severe slowing growth, folks. Not sure how else you could interpret it.

I can’t intelligently comment on the billings portion, we can likely expect $430M this year at least based on increasing their top end guidance by 2% each of the next two quarters. That is comfortable in my opinion, but is certainly open for discussion.

If the above is true, growth will be around 42% this year which is definitely a slow down, but suggests it is leveling off.



Man, Zscaler’s Sales Ops and Finance teams are pretty terrible at forecasting.

Here's their actuals:

	Q1	Q2	Q3	Q4	Total
2018	40	45	49	56	190
2019	63	74	79	86	303
2020	94	

Here's their forecast for each quarter:

	Q1	Q2	Q3	Q4
2018				51
2019	59	67	75	83
2020	90			

Here's their annual forecast per quarter (using only their high-end ranges):

	Q4	Q1	Q2	Q3
2019	260	272	291	300
2020	405				

They were 43 M off in their forecast of 2019!

Now from Q4 to Q1, they’re already 8 M off from their high-end guidance of 2020 and it’s only Q1.
Based on trends, it appears 425-440 looks possible, so 40-45% growth, a definite slowdown and may lead to some multiple contraction but this will likely offset some stock price decline with their growing revenue.


ZS conference call highlights:

-CEO seemed calm and collected on the call

-CEO seems to think that their moat is wider than most think,
“You can take legacy single tenant security appliances and stick them in the cloud as virtual machines and call it cloud security that would be like placing thousands of DVD players in a public cloud and calling it a Netflix streaming service.”
Jay seems to think that, in order to compete, legacy firewall vendors would have to start from scratch and replace their current architecture which would be extremely costly.

-When asked by an analyst of Needham about competition from legacy firewall vendors, Jay had this to say:
“Alex regarding your second question about competition from firewall vendors somehow of discussion, keeps on coming. I tried to address it during my assessments. But fundamentally, if you look at the large enterprises to protect users they almost always look for a proxy architecture. If you talk to top 20 banks and ask anyone ‘would you just depend upon on next-gen firewall for user protection?’ I haven’t found a yes answer from a single bank so far.”
It seems that the CEO strongly believes that the Zscaler architecture has been and will continue to be a strong competitive advantage over legacy firewall vendors. He almost seemed frustrated that people still weren’t grasping the idea.

-Meaningful slowdown in growth

-Exciting new developments in CASB market
The CASB that we announced at Zenith Live is receiving very good early reception combined with our existing in line CASB capabilities. We will now offer a complete CASB solution.
It sounds like the addition of this new product will entice larger enterprises, who may have been wary at first to make the switch to Zscaler, as Zscaler will now be a single vendor for Secure Web Gateway, CASB, DNS, zero trust network access and remote browser isolation capabilities. Perhaps the lack of a “complete offering” is why some have stuck with their legacy firewall vendors to this point.
"If customers want something like that they have it but we believe a large number of customers will take Zscaler and if there is another CASB solution I think we’ll end up displacing it.

-Lots of hype about Dali and the new sales team/process, but no real concrete results

Everything the had to say sounded good, but the significant slowdown in growth has me worried. I’m wondering if their newly refined sales process in tandem with their “completeness of offering” with the new CASB product can reaccelerate top line growth in 2020. We shall see.


I’ve read the earnings transcript, and can’t find anything to get excited about. As others have mentioned above, not only has revenue growth slowed from 65% to 61% to 53% to 48%, plus a downward trend in billings, but here are a few more tidbits I felt lackluster about:

  • The number of subscribers was quoted at “over 3,900” which is the same count mentioned last quarter

  • International revenue was stagnant. APJ (Asian Pacific, Japan) was 8%, same as it has been past two quarters. EMEA (Europe, Middle East, Africa) was 41%, same as it has been past two quarters.

Here are some “highlights” as listed by the CEO, and my thoughts about them:

“The Zscaler cloud processes over 80 billion transactions per day”

Unless you are getting revenue per transaction, this is meaningless. I might think about eating ice cream 80 billions times a day, but that doesn’t translate to actual results.

“Let me now highlight a few wins in Q1”:

- “this Fortune 100 customer purchased our professional Bundle for all 40,000 employees three years ago. In Q1 they tripled that”

- “Now, I will share a new logo win of a Fortune 100 customer that needed to uplevel their security…They purchased ZIA transformation bundle for all 14,000 employees.”

- “Next, a top global healthcare company that bought our Business Bundle and cloud firewall for 30,000 employees 18 months ago, purchased an additional 30,000 seats”

Note how he highlights existing customers for his opening remarks, yet fails to mention any significant NEW deals. I want to hear about the future, not the present.

Zscaler currently represents about 5% of my portfolio, and I’m going to give serious thought about reducing over the coming days.