Shares of Zscaler Inc. (ZS) took a significant hit in early trading on Wednesday, despite the company reporting impressive fiscal fourth-quarter results. The decline in share price came as investors digested the company’s guidance for fiscal 2025, which revealed a back-end weighted billings growth and a potential slowdown in earnings.
While Zscaler exceeded analysts’ expectations for revenue and billings, the company’s outlook for the upcoming fiscal year sparked a wave of mixed reactions among analysts. Goldman Sachs analyst Gabriela Borges maintained a Neutral rating but slashed the price target from $189 to $177, citing a possible impact of increased non-GAAP income taxes and a shift towards enterprise business.
Cantor Fitzgerald analyst Yi Fu Lee also maintained a Neutral rating, reducing the price target from $200 to $170. He expressed concern about the billings guidance, which he believes falls short of investor expectations. Meanwhile, Needham analyst Alex Henderson reaffirmed a Strong Buy rating, though he also reduced the price target from $290 to $235. He highlighted the company’s robust revenue growth and the potential for accelerated hiring to drive future performance.
Other analysts echoed similar sentiments. Piper Sandler analyst Rob Owens maintained an Overweight rating, reducing the price target from $255 to $215, while acknowledging the strong performance but expressing reservations about the billings guidance. Oppenheimer analyst Ittai Kidron reiterated an Outperform Buy rating with a reduced price target of $230 from $260, noting the impressive gross and operating margins but pointing to a potential headwind from emerging product adoption.
Scotiabank analyst Patrick Colville expressed concern about the unusual seasonality in the billings guidance, stating it introduces additional risk to the Zscaler story. BMO Capital Markets analyst Keith Bachman maintained an Outperform rating with a reduced price target of $197 from $208, emphasizing the expanding deal sizes and increasing contributions from emerging products.
KeyBanc Capital Markets analyst Eric Heath reiterated an Overweight rating with a price target of $164, highlighting the company’s strong go-to-market execution but noting the modest billings beat and the impact of GTM changes on first-half billings. RBC Capital Markets analyst Matthew Hedberg reaffirmed an Outperform rating with a price target of $230, emphasizing the strong performance in the quarter but acknowledging the challenging macro environment.
JMP Securities analyst Trevor Walsh maintained a Market Outperform rating with a price target of $270, pointing to the upbeat quarterly results but acknowledging the lower-than-expected earnings guidance. Stifel analyst Adam Borg reiterated a Buy rating with a price target of $220, expressing confidence in the company’s strong execution and expecting the guidance to prove conservative. Truist Securities analyst Joel Fishbein reaffirmed a Buy rating with a price target of $260, highlighting the company’s ability to deliver significant operating leverage while maintaining growth and gaining traction with its large customer cohort.
The decline in Zscaler shares reflects the market’s cautious reaction to the company’s back-end loaded billings growth and potential slowdown in earnings. While Zscaler delivered impressive quarterly results, investors are seeking reassurance about the long-term outlook and the company’s ability to navigate the challenging economic environment.
