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Zscaler: From Going Astray To Acceleration

Mar. 03, 2021 9:45 AM ETZscaler, Inc. (ZS)CRWD, FTNT, NET, OKTA, PANW8 Comments
Niki Schranz profile picture
Niki Schranz


  • Zscaler went from deceleration to acceleration since the pandemic, sending shares up more than 4 times since the lows.
  • The growth problems I highlighted after Q2 2020 are completely behind it. The question remains how long accelerated growth might last after Q2 2021.
  • Guidance looks quite prudent but Zscaler should manage to keep growing above 50% for the next quarters. Billings, RPO, and deferred revenue growth suggest it.
  • Valuation is stretched and the stock is by no means a bargain. But Zscaler's strong fundamentals combined with a strengthening competitive position make it a buy.

One year ago, on March 4th, 2020, I asked the question if there are More Troubles Ahead for Zscaler? There, I highlighted the growth deceleration that has been going on for some quarters, the sales problems mentioned by management, discussed the possible reasons and consequences of these growing pains, and concluded that it would be wise to not add to the shares at the moment. I was wrong.

The main reason that I was wrong was not that I misjudged the company at the time but that I was completely unaware of a little thing called coronavirus. Here is what I wrote in my first Zscaler-article in December 2018:

To understand what Zscaler does on a high level, you must be aware of two basic trends that are happening right now: First, company applications and data are migrating from company networks to the cloud. And second, employees are becoming more mobile and need secure access to company resources from any location and device.

This kind of put Zscaler (NASDAQ:ZS) in the sweet spot during the pandemic, right? On top of that, it seems to me that the fact that Zscaler was running into sales execution problems and already took multiple steps to address these issues well before the pandemic put them in an even better position to handle the increased demand in the last twelve months. As a result, Zscaler is firing on all cylinders again and should be considered a buy even after the huge run-up in the share price.

From Deceleration To Acceleration

Since I wrote my March 2020 article (when I was very alarmed by revenue and billings growth decelerating all the way down to 36% and 18%, respectively) the company has made a complete U-turn. From Q3 2020 to Q2 2021 revenue growth accelerated to 39.7%, 46.2%, 52.4%, and 55% and billings growth jumped to

This article was written by

Niki Schranz profile picture
I am an individual investor from Europe. My investment decisions are based on fundamental analysis and long-term thinking. My goal is to find and invest in companies with the potential to yield high returns in the long term. I study earnings releases, conference calls, announcements, and basically everything I can find about the stocks I own. When I find the time, I like to write down some of my thoughts. My portfolio (as of December 2022): AAPL, AMZN, CRWD, DDOG, GOOG, MA, MDB, MNDY, NET, NFLX, OKTA, PYPL, SHOP, SNOW, UPST, ZM, ZS. My content is intended to be used and must be used for informational purposes only. It is very important to do your own analysis before making any investment decisions.

Analyst’s Disclosure: I am/we are long ZS, CRWD, OKTA, NET. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (8)

Pillpoppinpuppy profile picture
Chief revenue officer and CEO both dumped stock yesterday.
Was it planned five months ago?
Did they need the funds for family health issues?
Is either in a divorce situation?

Maybe you don't know, and their selling has ZERO to do with the prospects of the stock (I mean, did they sell ALL their shares, just some, maybe a tiny fraction)? Maybe?
Niki Schranz,
You long NET. In your mind, is FSLY a dead investment relative to NET? Thanks
Does anyone know the main tech differences between Cloudfare, Zscaler and Cloudfare?
The question in my mind is how do names like ZS and CRWD fare in the next 6-9mths as interest rates continue to go up? Their valuations are based on huge future cash flows which will keep getting discounted more and more. On the other hand, these are best in class companies in a field that will continue to grow (they didn't need covid to grow). Will for sure be a bumpy ride.
Great work OP.

IT Security is a no brainer play, and ZS (and CRWD and OKTA) are at the top IMO. I just ignore things like interest rates, rotations, etc. etc.... just wait for the next data breach / hack / data-hostage event and these stock all jump out of consolidation. Rinse and repeat for 10 years. Long runway.
@Okra1 This interest rate Hysteria will pass soon, as it always does. It is just short trading speculation in the bond market. As usual. It could in fact crumble in days if the Fed Reserve implements a TWIST in the next few days. Basically the short end 5 year bond which has sky rocketed would be bought hand over fist by the Fed driving the yields down like an avalanche.
Robust Fundamentals; stock breaking down on very good news.
Be careful.
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