Zscaler slides as billings outlook clouds Q1 earnings beat for cybersecurity group

Updated at 7:57 AM EST

Zscaler  (ZS) - Get Free Report shares slumped lower in early Tuesday trading after the cloud cybersecurity group issued a muted near-term sales forecast that offset stronger-than-expected first quarter earnings. 

San Jose, California-based Zscaler said earnings for the three months ending in October, the group's fiscal first quarter, rose 131% from last year to 67 cents per share, well ahead of Street forecasts of 49 cents per share, with revenues rising 40% to $496.7 million. 

Annual recurring revenue (ARR), a key performance metric for tech services companies, topped the $2 billion mark again over the quarter – doubling from $1 billion in just seven quarters – with record new $1 million ARR accounts added over the past three months.

The group is also benefiting from new Securities and Exchange Commission rules that require public companies to disclose cybersecurity incidents that impact its business within four business days of discovery,.

Looking into its coming fiscal year, Zscaler said it sees earnings in the region of $2.45 to $2.48 per share on revenues of between $2.09 billion and $2.1 billion, a figure that would represent a year-on-year growth rate of around 30%. 

Full-year billings, however, were pegged at a between $2.52 billion and $2.56 billion, pegged a year-over-year growth rate of around 24% to 26%, a tally that triggered some selling of the stock in after-hours trading.

"We executed well in a challenging macro environment in what is typically a slower quarter for us. The elevated scrutiny of large deals remains mostly unchanged," CEO Jay Chaudhry told investors on a conference call late Monday. "The increased frequency of high-profile breaches, coupled with impending SEC disclosure requirements, has propelled zero trust security more into focus at the management and the board level."

"The increased frequency of high-profile breaches, coupled with impending SEC disclosure requirements, has propelled zero-trust security more into focus at the management and the board level,” he added. 

Zscaler shares were marked 4.4% lower in pre-market trading to indicate an opening bell price of $183.50 each, a move that would still leave the stock up more than 35% over the past six months.

"Zscaler is operating at a high level of growth, profitability, and predictability in a persistently challenging macro environment, and we continue to like the name," said JMP Securities analyst Trevor Walsh, who carries an 'outperform' rating with a $225 price target on the stock, citing the Chaudhry's leadership, the group's solid free-cash flow generation and its success in the 'zero trust' security platform market.

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