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Zscaler is a California-based cloud security company that helps enterprise customers through its cloud-native technology platform called “Zscaler Zero Trust Exchange”. Organizations can use its Zscaler Internet Access solution to access servers and operational technology, Internet of Things device to manage applications externally including software-as-a-service (SaaS) applications, and the Zscaler Private Access solution for accessing managed applications that are hosted internally in data centers, and the private or public clouds.
Since the start of 2022, the condition of the growth stocks, especially tech firms, has been challenging. The Nasdaq-100 technology index is down by almost 32% year-to-date and the performance of Zscaler stock too hasn’t been that great. Issues like high inflation and the resulting rise in interest rates by the Fed have taken a toll on the overall company’s performance. It has ended up losing more than 50% of its value this year so far.
With rising inflation, interest rates, and a possible recession on the horizon, is Zscaler stock a good buy?
Is Zscaler Stock a Good Buy in the Market Right Now?
Immense Prospects of Cloud Computing
Cloud computing has been one of the largest enablers of globalization and has largely defined the modern-day business environment. This cloud computing industry was one of the highest gainers during the pandemic when all businesses had to be carried out remotely.
The growth in the cloud computing industry has just commenced and looking at the impact it is creating in the market it seems this industry has still has a lot of growth potential. The same can be confirmed from research conducted by Markets and Markets, which that state the cloud computing industry which was valued at $445.3 billion in 2021 might reach a market size of $947.3 billion by 2026 growing at a Compound Annual Growth Rate (CAGR) of 16.3% between the above-mentioned period.
Cybersecurity is one of the key concerns today. As data is the biggest asset of any organization, protecting data is one of the biggest challenges that almost every organization has to face these days. It is being said the cybersecurity market might surpass $376.32 billion in 2029 growing at a CAGR of 13.4%.
Zscaler provides a solution to this big problem. The company is one of the biggest cybersecurity specialists that helps corporate clients modernize their infrastructure requirements. Through its platform, Zscaler has been accelerating and securing corporate networks and cloud workloads and enabling clients to let their employees connect safely to the corporate applications using any device or from any location. Notably, it has got the largest network security cloud in the world and manages as many as 240 billion requests every day. The company identifies and blocks the millions of data security threats its clients face every day and use that to make its artificial intelligence even smarter every day.
Therefore, as more and more opportunities start pouring into the cloud computing space, Zscaler can be one of the biggest beneficiaries.
Strong Financial Results
The strong operations in Zscaler have helped the company secure strong financial results. The company has been continuously locking in a large base of customers and as a result, has generated a revenue of $287 million in its most recent quarter indicating a solid 63% growth even in this dull market. The calculated billings had grown 54% to $345.6 million and there was a 65% improvement in the deferred revenues to $818.7 million as well. Further, the free cash flow margin was 15% and the adjusted net income per share was s $0.17 against the $0.15 recorded in the third quarter of the fiscal year 2021.
However, Zscaler is still unprofitable despite such an improvement in its revenues. The loss from operations of the company was recorded at $86.6 million or at 30% of its total revenues compared to last year when the loss was $43.9 million or 25% of its total revenue. Moreover, the net loss came at $101.4 million compared to the loss of $58.5 million generated in the third quarter of last year. Yet considering the company’s cash position of $1,657.9 million as of April 30, 2022, it seems Zscaler is still quite liquid and no liquidity issue would occur as of now because of the continuous cash burn.
Further, for the coming quarter, Zscaler expects its revenue to be in the range of $304 million to $306 million and the adjusted net income per share between $0.20 and $0.21.
Is Recession Resistant
Inflation in the United States has reached its 40-year high and as a result, the fed has been continuously increasing its interest rates to combat the same. Such a rise in interest rates has led to a possibility of a recession in the near future. Cybersecurity is a recession-resistant industry because no matter what the market situation is a company will have to continue spending money in securing its data. This is because back in 2021, the company had observed around 874 million phishing attacks which were 29% higher than in 2020.
Zscaler is one of the biggest players in the cybersecurity space. It already has over 6000 customers and is continuing to increase its customer base. Therefore, if a recession occurs the Zscaler stock will be one of the least affected ones in the investor’s portfolio.
The stock closed June 17 at $144.22 and the average analyst target Zscaler stock price is $230.9 which is a potential upside of around 60%.
Is Zscaler Stock a Good Buy?
Zscaler is likely to reach new highs in the coming months. The cybersecurity space is already one of the hot sectors and as per Gartner, Zscaler has been a leader in that space for eleven consecutive years. Moreover, the company has got a perfect blend of a good revenue model and strong financial results. It has been continuously pouring money into transforming its operations and pushing for the increased adoption of remote work across the globe. Therefore, in today’s volatile market it is always suitable to put money on stocks like Zscaler.
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