Zscaler (ZS, Financial) reported robust quarterly results, surpassing EPS and revenue estimates, joining the ranks of cybersecurity peers Palo Alto Networks (PANW, Financial) and CrowdStrike (CRWD, Financial). However, its guidance fell short of market expectations. Adding to investor concerns, longtime CFO Remo Canessa announced his retirement, creating uncertainty as Zscaler navigates a new sales strategy in a challenging market.
During the Q1 earnings call, Zscaler maintained its forecast for contracted billings growth of 7% in 1H25, with an expected acceleration to 23% in 2H25. This growth target will be challenging for the incoming CFO, but Zscaler is optimistic due to strong interest in its AI offerings, a robust pipeline, and increased sales capacity.
Despite raising its FY25 EPS and revenue guidance to $2.94-$2.99 and $2.623-$2.643 billion, respectively, the updates were in line with analysts' expectations, leaving investors wanting more.
Mr. Canessa noted ongoing customer scrutiny over large deals, influencing Zscaler's cautious outlook. The company is transitioning to an account-centric sales strategy, launched in November 2023, which is showing progress with better customer engagement and a higher quality pipeline, though sales productivity remains a work in progress.
Zscaler is enthusiastic about its AI growth prospects, introducing innovations like Zscaler for Copilots, which aids secure AI app adoption, and ZDX Copilot, an automated digital experience tool, contributing to larger deals.
Despite strong quarterly performance, particularly in upsells and larger deals (25% year-over-year growth in $1.0+ million ARR customers), Zscaler's guidance disappointed investors, with the CFO's unexpected retirement adding uncertainty.
