What to Expect from Zscaler’s Share Price as Q4 Earnings Loom

The Zscaler [ZS] share price soared to a new intraday high at $287.87 last Friday, 3 September, before closing just shy at $287.50, as the cloud-based information security provider continues to scale new heights.

The company’s Zero Trust Exchange relies on a distributed network architecture known as a secure access service edge (SASE), which accelerates and protects applications and data, eliminating the need for firms to buy and maintain on-site hardware.

Zscaler’s share price outperforms wider sector

Zscaler’s share price is up 46.57% year-to-date and 113.93% across the last 12 months, giving the firm a market cap over $39bn. Zscaler’s share price gains compare favourably with the tracked Cloud Computing (Saas) ETF, represented by the First Trust ISE Cloud Computing Index Fund [SKYY], on our theme screener. The ETF, is up 34.30% over the last year, with a gain of 6.15% over the previous month. Zscaler accounted for 0.78% holding of its holding at close on September 3. The share rose 15.92% in the last month, higher than year on year and year to date gains of the wider S&P 500 index.

What could move Zscaler’s share price post earnings?

Cybersecurity is a fast-growing industry, fueled by the growth in remote working brought on by the global pandemic. Cyber attacks are becoming more common: the Motley Fool highlighted a recent Zscaler study, which showed a 700% leap in malware targeting internet of things (IoT) devices, compared with pre-pandemic levels. The report also identified that 76% of devices use unencrypted channels, making corporate networks especially vulnerable to an attack.

There’s clearly a huge untapped market, which offers obvious potential for Zscaler’s revenue and share price prospects. Reinforcing the study’s results, the Motley Fool reports that the company has 4,500 clients with 20 million paid users – and Zscaler in January this year forecast the number rising to 600 million users. With the company yet to record a net profit, investors and analysts will be watching the latest user growth figures with interest.

Recent product releases, including Zscaler Cloud Protection, which extends its zero-trust solution to cloud workloads, and Zscaler Digital Experience, enabling user experience to be measured across business applications may start to kick in for the company. According to the Motley Fool’s Trevor Jennewine, “these products enhance Zscaler's ability to monetise its business, and make its platform a more well-rounded solution.” Signs of subscription to its latest products will be another metric to watch in the Q4 earnings release.

What happened last quarter?

For investors, the obvious move would be to back an electric charging specialist like Blink Charging [BLNK] or EVgo [EVGO]. However, Shell and Chevron are among the big corporate investors backing EV charging stations. These are well-funded, established companies, with an existing infrastructure of petrol stations they could leverage. For cautious investors this is a route to participate in the transition to electric charging on the forecourt.

Zscaler’s Q3 earnings per share of $0.15 per share beat Zacks’ consensus estimate of $0.07, and was ahead of last year’s $0.07 EPS covering the same period. Q3 revenue came in at $176.4m, a big 60% year-on-year jump.

Chairman and CEO, Jay Chaudhry (pictured above), was bullish in his Q3 update. "We delivered outstanding results for the third quarter, with revenue growth accelerating to 60% year-over-year and free cash flow reaching a new record.” He added: "Our strategic position with customers continues to strengthen, and we are executing well on our go-to-market initiatives. With strong business momentum, we are pleased to again increase our fiscal year guidance."

When is Zscaler reporting Q4 earnings?

Thursday 9 September

What is Wall Street expecting?

Zscaler is projected to report earnings of $0.09 per share, according to Zacks, which would represent year-on-year growth of 80%. Its consensus estimate is for quarterly revenue of $187.84m, which would be a 49.21% jump from the same quarter last year. This estimate compares well versus Zscaler’s own guidance when it reported Q3 numbers back in May, of revenue between $185m and $187m, and EPS of $0.08 to $0.09 for the quarter being reported.

Analysts offering 12-month forecasts for Zscaler’s share price have an average target of $256.24 with the Wall Street Journal, which represents a -10.84% decrease from Friday’s close at $287.40. This is perhaps unsurprising considering the stock’s continued upward momentum and fresh all-time high. According to the WSJ, 19 analysts rate the Zscaler share price a ‘buy’, with one ‘overweight’ and eight ‘hold’.