MW Zscaler's post-earnings stock drop further bucks 2024's rally by software sector

By Emily Bary

Zscaler's stock was down on the year prior to earnings, while an ETF tracking the software sector has rallied 29%

Zscaler Inc. shares have missed out on the software sector's rally this year, and their after-hours action Monday suggests that trend could persist.

Shares of the cybersecurity company were off more than 6% in Monday's extended session, despite better-than-expected results for the latest quarter and an upbeat outlook for the full year.

The stock has lost about 6% this year as the iShares Expanded Tech Software ETF IGV has risen 29%.

Zscaler (ZS) models $2.623 billion to $2.643 billion in revenue for the full fiscal year, which ends next July, along with $3.124 billion to $3.149 billion in calculated billings. That compares with the $2.611 billion to $3.125 billion, respectively, that analysts tracked by FactSet were modeling.

The company's full-year forecast for adjusted earnings per share came in at $2.94 to $2.99, also beating the FactSet view, which was for $2.86.

Meanwhile, Zscaler models $633 million to $635 million in revenue for the fiscal second quarter, while analysts were modeling $633 million. Investors might have been looking for more oomph on that forecast given the magnitude of the company's beat in the latest period. Zscaler is looking for 68 cents to 69 cents in adjusted EPS for the current quarter, whereas analysts were projecting 68 cents.

Zscaler easily cleared Wall Street's bar in the fiscal first quarter, hauling in $628 million in revenue, while analysts were expecting $606 million. The company also notched 77 cents in adjusted EPS, versus the 63-cent consensus view.

On a GAAP basis, the company posted a net loss of $12.1 million, or 8 cents a share, compared with a loss of $33.5 million, or 23 cents a share, in the year-earlier period.

"Growing customer engagements and strong sales execution drove a solid Q1, with all metrics exceeding our guidance," Chief Executive Jay Chaudhry said in a release.

Prior to the report, Guggenheim analyst John DiFucci highlighted "mixed" responses from partners in the field.

"Despite all partners either meeting or exceeding plan this quarter, commentary from the field was mixed again," he wrote. "Pipeline commentary was mostly positive, especially in Europe, but one [North America] partner noted the ZS practice was falling below actual (vs. official) plans, while another lowered growth expectations."

-Emily Bary

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December 02, 2024 16:54 ET (21:54 GMT)

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