Investors in cybersecurity company Zscaler(NASDAQ: ZS) probably weren't feeling too secure over the past few days. According to data compiled by S&P Global Market Intelligence, Zscaler's stock was down by almost 19% week to date as of late Thursday evening. An uninspiring quarterly earnings report, accompanied by analyst price target cuts and even a downgrade, was largely to blame.
Trailing success, looming disappointment
Zscaler published its results for the fiscal fourth quarter of 2024 after market close Tuesday, and the subsequent downbeat investor reaction set the tone for the rest of the week.
It wasn't that the company did badly in the quarter ended July 31. Rather, the opposite occurred, as its revenue grew a sturdy 30% year over year to almost $593 million, while billings rose 27% and deferred revenue increased 32%. Non-GAAP (adjusted) net income beat them all with a 39% leap to nearly $141 million. Speaking of beats, both the top- and bottom-line results were comfortably higher than the consensus analyst estimates.
Savvy investors trade on future potential rather than trailing performance, and that's been the rub for Zscaler. The company's adjusted profitability guidance for both its current (first) quarter and the entirety of fiscal 2025 were underwhelming. It's anticipating a per-share figure of $0.62 for the former period and $2.84 for the latter; both are notably below the average pundit projection.
Several cuts and one downgrade
Investors didn't like that guidance, and at least a few analysts were cold to it, too. Several cut their price targets on Zscaler stock in the wake of that earnings release, with one taking the extra step of downgrading his recommendation.
Tal Liani of Bank of America Securities now feels the company is worthy only of a neutral, where previously it was rated a buy. In addition to this change, Liani cut the stock's price target to $195 per share from $265. The prognosticator expressed particular concern about management's weaker-than-expected billings guidance, which he wrote, "brings up concerns about underlying growth, impact of competition, and disappointing upsell opportunities."
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Zscaler. The Motley Fool has a disclosure policy.
