Zscaler’s Stock Takes a Hit as Analysts Trim Price Targets
Zscaler, listed on NASDAQ as ZS, found itself under the market microscope as it provided guidance that fell below expectations, prompting a number of reputable Wall Street institutions to reduce their price projections.
The company’s shares witnessed a sharp decline of 17.7% during midday trading.
“ZS posted commendable 4Q24 results, but its outlook for 1H25 billings, weaker than anticipated, raised eyebrows,” remarked J.P. Morgan analyst Brian Essex. “Though the firm had hinted at softer billings in the prior quarter, the extent of the apparent slowdown caught many off guard.”
Essex maintained his Overweight rating but revised down his price target to $220, down from $230. He observed that the billings forecast for fiscal 2025 slightly missed consensus at the midpoint. Nevertheless, he commended the company’s operating income guidance and perceived the billings forecast as a typical display of caution customary at the beginning of a fiscal year for Zscaler.
For the upcoming fiscal year, Zscaler anticipates adjusted earnings per share to fall between $2.81 and $2.87, with the midpoint at $2.84 – falling short of the estimated $3.36 per share. Revenue is expected to range from $2.6 billion to $2.62 billion, with the midpoint of $2.61 billion below the $2.63 billion forecast.
Analysts Evaluate Zscaler’s Puzzlingly Conservative Guidance
UBS analyst Roger Boyd expressed his struggle to rationalize what he deemed a “more conservative outlook.”
“While [management] highlights the increasingly back-half weighted nature of the business, the decline in F1H 23/24 bookings contributing less to FY25 billings shouldn’t have come as a surprise given the conditions 90 days ago,” noted Boyd in his analysis.
Consequently, Boyd slashed his price target for Zscaler from $270 to $250, while maintaining his Buy recommendation.
Wells Fargo’s Andrew Nowinski adjusted his price target to $180 from $182 following the company’s financial report.
Meanwhile, Bank of America analyst Tal Liani raised eyebrows by downgrading Zscaler’s shares due to worries about pricing and competitive pressures.
“We suspect that the growth slowdown in the first half might signify deeper underlying growth challenges,” Liani cautioned in a client memo. “Intensifying competition and a deteriorating pricing environment are our primary concerns. Palo Alto Networks displayed robust growth, with its platformization approach implying more discounts and financing options. Cisco and Fortinet also reported growth acceleration, offering competitive pricing incentives.”
Liani revised his rating on Zscaler to Neutral from Buy and slashed his price target to $195 from $265.
(Editor’s note: This article has been updated to include insights from Bank of America.)