9/5/19 – ZS
Zscaler will release their new quarterly earnings next week on September 10, 2019. Zscaler makes up about 10% of my portfolio and has a revolutionary idea in Internet security. In a cloud world where putting a firewall around your servers no longer suffices, Zscaler provides native cloud-based security, and they appear to be the leader in the niche they serve, if not the only pure player, in this regard. ZScaler is a Cloud-based security company that provides a platform built as a multi-tenant, distributed cloud service designed to scale and deliver real-time insights into security issues. And they have 100-plus data centers all around the world, established over a decade ago, which would be difficult for most potential competitors to replicate. They are growing revenues, bookings, new customers and every other aspect at an astonishing rate and have just transitioned to adjusted EPS of .05 cents (positive), up from a LOSS of (.02 cents).
Following is a glimpse of their last earnings release about 3 months ago:
Revenue was up 61% q/q to $79 million. This was an acceleration from 49% growth a year ago!
Calculated billings were up 55% from $55 million to $85 million.
Adj net income was $7.4 million, up from a LOSS of $2.6 million.
Free cash flow was $4.6 million, or 6% of revenue.
They have been named a leader in Gartner for the 8th year in a row.
Zscaler Private Access (ZPA) is the first zero trust architecture to achieve AWS Security Competency status, and it achieved FedRamp authorization. Basically, this sets the stage to further expand its growth within the Federal market, which they are already doing,
The only significant recent news is from June, when Zscaler announced a global alliance partnership agreement with NTT Communications (a subsidiary of Nippon Telephone and Telegram) to deliver cloud-based internet and web security that scales to all users, regardless of location, enabling enterprises to securely embrace the cloud.
I have built Zscaler into one of my top positions with 9 different purchases over the past 15 months and am up over 60% in the company. Traditional security providers can’t compete with Zscaler because their businesses are built around high-priced hardware and firewalls, and they don’t have the data centers already set up all over the world, which provides something of a barrier to entry. Granted, ZS sells at a high valuation, as you might expect with a company growing this fast, but that valuation has been compressed significantly over the past 2-3 months as the stock price has dropped from $89 down to $67/share, which may present a nice buying opportunity if you believe they will continue to maintain their blistering growth. The proof will come one way or another next week on 9/10/19 when they release their next quarterly earnings.
Cyber-security is such a core necessity of our modern world that a company like Zscaler is enabling an entirely different network framework that is far more efficient and useful than what currently exists and is pervasive in traditional computer security. There may not be a more core, critical and essential technology today than SECURITY…. You cannot run a business today of any scale without robust security…. Your entire business can be destroyed, held captive or overrun without security. Zscaler offers a relatively elegant and effective cyber security solution that does not unduly encumber its customers businesses, but protects them in the cloud. If they continue to grow at this rate, I see no reason they should not double or triple from here. If their growth stumbles or decelerates significantly, I will have to reacess my position at that time, but for now I am sitting tight!
Cheers!
