On September 10, cloud security company Zscaler (ZS) reported its results for the fourth quarter of fiscal 2019 and its fiscal 2019 financial results. The company reported fourth-quarter revenues of $86.11 million, a YoY (year-over-year) rise of 53.29%. This was higher than the consensus estimate by $3.28 million.

The company also reported non-GAAP earnings per share of $0.07, a YoY rise of 800.0%. This is higher than the consensus estimate by $0.06. The company’s GAAP EPS of -$0.04 also surpassed the consensus estimate by $0.07.

In fiscal 2019, Zscaler reported revenues of $302.8 million, a YoY rise of 59.24%. The company also reported non-GAAP EPS of $0.22, a YoY rise of 195.65%.

In the fourth quarter, Zscaler reported $125.8 million in billings, a YoY rise of 32%. The company reported calculated billings of $390.02 million in fiscal 2019, a YoY rise of 51.42%.

In the fourth quarter, Zscaler reported deferred revenues of $251.2 million, a YoY rise of 53%. According to Zscaler’s press release, calculated billings include revenues and changes in deferred revenues reported by the company in the given timeframe.

Share price tanks on lower-than-anticipated earnings guidance

On September 10, Zscaler stock closed at $61.60, 0.68% lower than the previous closing price. However, ZS stock tanked by 20.29% to $49.10 in the after-market trading session.

Today, the company is trading 18.83% lower than the previous closing price to $50.00 in the pre-market trading session. This drop is in response to the company’s lower-than-anticipated earnings guidance for the first quarter and for fiscal 2020.

Zscaler has guided for non-GAAP revenues of $89 million–$90 million for the first quarter. This implies a YoY rise of 41%–42% and is higher than the consensus estimate of $87.6 million. However, the company has guided for first-quarter non-GAAP EPS of $0.00–$0.01, which is lower than the consensus estimate of $0.03. This assumes 139 million common shares outstanding at the end of the first quarter.

Zscaler anticipates a non-GAAP operating loss of $1.0 million to breakeven performance in the first quarter. This is mainly attributable to $6.0 million in additional expenses in the first quarter. These expenses are associated with Zenith Live Summit in Las Vegas, the Zenith Live Summit in Europe, and increasing sales performance.

Zscaler has also guided for fiscal 2020 revenues of $395 million–$405 million. This implies a YoY rise of 30%–34% and is in line with the consensus estimate of $402.82 million. The company expects calculated billings of $490 million–$500 million in fiscal 2020, a YoY rise of 26%–30%.

The company also reported non-GAAP EPS of $0.12–$0.15 for fiscal 2020. This is lower than the consensus estimate of $0.20 and assumes 140 million common shares outstanding.

Zscaler’s share price has been under stress since August

Zscaler’s share price has increased by 57.10% year-to-date. However, its share price gains would have been even greater had it not been for two major setbacks faced by the company since August.

On August 19, OTR Global downgraded the company from “mixed” to “negative.” The research firm raised concerns about the company’s growth rate in the face of rising competition and the lagging performance of its channel partners. Subsequently, the stock fell 11.26% and closed at $71.80 on August 19.

On September 5, competitor Palo Alto Networks made some negative comments about Zscaler in its fourth-quarter earnings call. This pulled down Zscaler’s share price by 4.37% to $64.05 on September 5.

To learn about Palo Alto networks’ fourth-quarter earnings performance, please refer to Why Is Palo Alto Networks Stock Rising Today?

What are analysts saying about Zscaler?

The 19 analysts tracking Zscaler have an average target price of $71.76 on its stock. This indicates a potential upside of 16.49% in the next 12 months based on the last closing price.

The company reported its third-quarter earnings on May 30. On May 31, Berenberg initiated coverage for the stock with a “hold” recommendation. However, on May 31, Needham reiterated its “strong buy” recommendation and increased the target price from $65 to $89.

On August 2, BMO Capital Markets initiated coverage for Zscaler with a “market perform” rating. On September 10, Rosenblatt initiated coverage with a “neutral” rating.

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