Zscaler Q3 Earnings Beat: Will Strong Guidance Lift the Stock Higher?
Zscaler ZS reported third-quarter fiscal 2025 non-GAAP earnings of 84 cents per share, which beat the Zacks Consensus Estimate by 12%. Moreover, the bottom line increased 18.3% year over year, driven by higher revenues and efficient cost management.ZS' earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 18.7%.Zscaler's third-quarter fiscal 2025 revenues of $678 million beat the Zacks Consensus Estimate by 1.8% and exceeded management's guidance of $665-$667 million. The top line grew 23% year over year, demonstrating the company's strong market position, fueled by heightened customer commitments to the Zero Trust Exchange platform and a growing demand for its artificial intelligence (AI)-based solutions.After the stronger-than-expected third-quarter results, Zscaler raised its guidance for fiscal 2025. The stronger-than-expected results and raised guidance for fiscal 2025 are likely to lift ZS stock higher. Zscaler shares have gained 39.1% year to date, outperforming the Zacks Security industry's growth of 17.2%.
Zscaler, Inc. price-consensus-eps-surprise-chart | Zscaler, Inc. Quote
During the fiscal third quarter, Zscaler's calculated billings increased 25% year over year to $784.5 million.Region-wise, the Americas accounted for 54% of revenues, while the EMEA contributed 30%. The Asia Pacific and Japan made up the remaining 16%.In the fiscal third quarter, ZS added multiple large customers across all its offerings, including ZIA, ZPA and ZDX. Its net 12-month trailing dollar-based retention rate was 114%, driven by the sale of bigger bundles and strong upsells.Remaining Performance Obligations (RPO), representing Zscaler's committed non-cancelable future revenues, were $4.978 billion as of April 30, which increased 30% year over year. The current RPO is approximately 48% of the total RPO.At the end of the quarter, the company had 642 customers with $1 million or higher annualized recurring revenues (ARR). Zscaler's customer count for ARR of more than $100,000 reached 3,363 at the end of the third quarter.
The non-GAAP gross profit increased 20.8% year over year to $544.15 million. The non-GAAP gross margin contracted 100 basis points (bps) on a year-over-year basis to 80%.Total non-GAAP operating expenses, accounting for 58.6% of revenues, increased 21% year over year to $397.5 million.The non-GAAP operating income was $146.7 million compared with the year-ago quarter's $121.83 million. The non-GAAP operating margin remained the same year over year at 22%.
As of April 30, 2025, Zscaler had $1.99 billion in cash, cash equivalents and short-term investments compared with $2.88 billion as of Jan. 31, 2025.The company generated operating and free cash flows of $211.1 million and $119.5 million, respectively, during the third quarter. In the first three quarters of fiscal 2025, Zscaler generated operating and free cash flows of $721.8 million and $554.8 million, respectively.
Zscaler revised its outlook for fiscal 2025. The company now forecasts revenues in the range of $2.659-$2.661 billion, up from the previous guidance of $2.640-$2.654 billion. The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $2.65 billion, suggesting growth of 22.18% from fiscal 2024.Calculated billings are now expected in the range of $3.184-$3.189 billion, up from the previous guidance of $3.153-$3.168 billion.Non-GAAP earnings per share for fiscal 2025 are expected in the band of $3.18-$3.19 compared with the previous guidance of $3.04-$3.09. The consensus mark for fiscal 2025 earnings is pegged at $3.06 per share, which has remained unchanged over the past 30 days.For the fourth quarter of fiscal 2025, Zscaler projects revenues between $705 million and $707 million. The Zacks Consensus Estimate for fourth-quarter fiscal 2025 revenues is pegged at $707.18 million, implying growth of 19.28% year over year.Non-GAAP earnings per share are projected between 79 cents and 80 cents. The Zacks Consensus Estimate is pegged at 75 cents, which has remained unchanged over the past 30 days. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Currently, ZS carries a Zacks Rank #3 (Hold).Paylocity Holding PCTY, StoneCo STNE and BlackBerry BB are some better-ranked stocks that investors can consider in the broader Zacks Computer & Technology sector.PCTY, STNE and BB sport a Zacks Rank #1 (Strong Buy) each at present. You can see the complete list of today's Zacks #1 Rank stocks here.
PCTY shares have declined 5.1% year to date. The Zacks Consensus Estimate for PCTY's full-year 2025 earnings is pegged at $6.95 per share, up by 4.51% over the past 30 days, indicating an increase of 0.99% from the year-ago quarter's reported figure.STNE shares have surged 68.2% year to date. The Zacks Consensus Estimate for STNE's full-year 2025 earnings is pegged at $1.43 per share, up by 3.62% over the past 30 days, indicating a gain of 5.93% from the year-ago quarter's reported figure.BB shares have gained 5.5% year to date. The Zacks Consensus Estimate for BB's full-year 2025 earnings per share is pegged at 10 cents, unchanged over the past 30 days, indicating a gain of 400% from the year-ago quarter's reported figure.
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