Zscaler (NASDAQ: ZS) stock collapsed in morning trading Wednesday, down by 17.8% as of 12:04 p.m. ET, even though the company crushed analysts' forecasts for its fiscal fourth quarter when it reported after the closing bell Tuesday.
Analysts had expected the cybersecurity company to report adjusted earnings of $0.69 per share on sales of $567.9 million for the quarter. Instead, its profits were $0.88 per share, and sales hit $592.9 million. Turns out, though, investors were less interested in Zscaler's recent past and more worried about what might happen next year.
Zscaler Q4 earnings
In some respects, Q4 was pretty great for Zscaler. Sales surged 30%, with billings (up 27%) and deferred revenue (32%) growing in tandem. In other respects, it was less great.
While the company managed an impressive non-GAAP earnings beat and cut its GAAP (generally accepted accounting principles) losses in half from the prior-year period, it still reported a $0.10 per share GAAP loss. For the full fiscal year, its GAAP losses were $0.39 per share, down from $1.40 per share in fiscal 2023.
CEO Jay Chaudhry hailed the results as "exceeding the high end of our guidance across all metrics." And Zscaler made good progress toward achieving true GAAP profitability.
Does this make Zscaler a buy?
But can Zscaler maintain its growth momentum and reach real profitability? That's where Zscaler's guidance news may be worrying investors a bit.
Turning to guidance, Zscaler said it expects to report non-GAAP profits of about $0.62 in fiscal Q1 2025, and $2.84 in fiscal 2025, with sales growth of 20%. Problem is, the consensus forecast among Wall Street analysts covering the company had been for non-GAAP earnings of $0.73 and $3.33, respectively. So basically, no sooner did Zscaler report an "earnings beat" in Q4 than it told investors it would miss earnings in the new quarter and fiscal year. Considering that analysts had already been warning that Zscaler wouldn't reach GAAP profitability before 2027, its underwhelming non-GAAP guidance implies that GAAP profitability could be even farther off.
With Zscaler's sales growth slowing and its earnings guidance coming in weaker than expected, Wednesday's sell-off seems justified to me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Zscaler. The Motley Fool has a disclosure policy.
