Latest news with #Ruleof40
Yahoo
3 days ago
- Business
- Yahoo
Zscaler Inc (ZS) Q3 2025 Earnings Call Highlights: Strong Growth Amid Economic Challenges
Revenue: $678 million, up 23% year over year and 5% sequentially. Annual Recurring Revenue (ARR): Approximately $2.9 billion, representing 23% year-over-year growth. Remaining Performance Obligations (RPO): $4.978 billion, up 30% year over year. Calculated Billings: $785 million, up 25% year over year. Gross Margin: 80.3%, compared to 81.4% in the year-ago quarter. Operating Margin: Approximately 22%, comparable year over year. Free Cash Flow Margin: 18%, including data center CapEx at 11% of revenue. Cash and Cash Equivalents: Approximately $3 billion. Guidance for Q4 Revenue: $705 million to $707 million, reflecting approximately 19% year-over-year growth. Full-Year Fiscal 2025 Revenue Guidance: $2.659 billion to $2.661 billion, reflecting approximately 23% year-over-year growth. Full-Year Fiscal 2025 Free Cash Flow Margin Guidance: Approximately 25.5% to 26%. Warning! GuruFocus has detected 4 Warning Sign with ZS. Release Date: May 29, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Zscaler Inc (NASDAQ:ZS) achieved its best Q3 with TCV bookings of over $1 billion and remaining performance obligations nearing $5 billion. The company reported a strong year-over-year growth in new logo ACV of over 40% and total new ACV up double digits. Zscaler Inc (NASDAQ:ZS) maintained a robust annual recurring revenue (ARR) of approximately $2.9 billion, marking the third consecutive quarter of 23% year-over-year growth. The company's free cash flow margin of 28% combined with a 24% revenue growth resulted in a Rule of 52 performance, surpassing the industry benchmark of Rule of 40. Zscaler Inc (NASDAQ:ZS) continues to expand its platform with significant growth in Zero Trust Everywhere, Data Security Everywhere, and Agentic Operations, with these categories approaching $1 billion in ARR. The macroeconomic environment remains challenging, with ongoing economic uncertainty causing customers to be cautious about IT spending. Zscaler Inc (NASDAQ:ZS) faces increased scrutiny of large deals, which could impact the timing and closure of significant contracts. The company's total gross margin decreased to 80.3% from 81.4% in the year-ago quarter, influenced by the introduction of new products optimized for faster go-to-market rather than margins. There is potential variability in the dollar-based net retention rate due to the company's success in selling bigger bundles and faster upsells, which could affect future metrics. The acquisition of Red Canary, valued at $675 million, is expected to be largely neutral to FY26 consensus operating margin, indicating limited immediate financial benefit. Q: How does Zscaler manage the expanding product portfolio and ensure sales focus, especially with the introduction of Z-Flex? A: Jay Chaudhry, CEO, explained that Zscaler uses a two-tier model where the core sales team covers all products with an account-centric approach, while specialized take-off teams focus on newer product areas. Z-Flex, a flexible purchasing program, evolved from customer demand for modularity and flexibility, allowing them to try and swap modules without repeated procurement cycles. The program has already contributed over $65 million in TCV bookings in its first quarter. Q: How is the macroeconomic environment affecting Zscaler's business, and what trends are being observed? A: Jay Chaudhry noted that while the overall spending environment remains challenging with tight budgets, cybersecurity, particularly Zero Trust architecture and AI security, remains a priority. Zscaler did not experience a softer April, likely due to not selling security appliances. The company continues to work closely with customers to reduce costs and become a strategic partner, translating into ARR growth. Q: Can you explain the structure and impact of Z-Flex deals on Zscaler's financial metrics? A: Remo Canessa, CFO, stated that Z-Flex deals are structured to provide customers with flexibility in adopting and swapping modules at predetermined pricing, reducing procurement cycles. These deals are typically longer in duration, moving from three to four or five years. Zscaler plans to transition from billing to ARR as a primary metric in fiscal '26, which aligns with the flexibility offered by Z-Flex. Q: How does the acquisition of Red Canary fit into Zscaler's strategy, and what benefits does it bring? A: Jay Chaudhry highlighted that Red Canary accelerates Zscaler's vision to become a leading player in the SOC market. The acquisition brings experienced detection and threat intel engineers, sophisticated agentic AI technology, and a seasoned go-to-market team. This complements Zscaler's existing data-fabric technology and enhances its security operations solutions. Q: What role does branch connector play in new customer wins, and how is it contributing to Zscaler's growth? A: Jay Chaudhry explained that the branch connector, now a plug-and-play appliance, simplifies branch infrastructure by integrating Zero Trust Branch connectivity and device segmentation. It has been instrumental in attracting new customers, with 59% of Zero Trust Branch buyers being new logos. The solution addresses customer pain points by eliminating the need for multiple legacy network devices. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus.
National Business Review
4 days ago
- Business
- National Business Review
TradeWindow pursuing ‘Rule of 40', needs positive earnings first
Trade Window Holdings has publicised its aspiration to be a 'Rule of 40' company for the first time while reporting its FY25 financial results today. The NZX-listed trade-related software company's founder and CEO, AJ Smith, said it was making 'solid progress' towards meeting the capital
Yahoo
5 days ago
- Business
- Yahoo
The 8-Letter Word Palantir Investors Shouldn't Overlook When Analyzing Its Numbers
Palantir has relied heavily on adjusted numbers in its earnings reports. Those adjustments exclude stock-based compensation, which is a relevant cost for investors to consider. Palantir's high share count is a key reason why the stock is so expensive. 10 stocks we like better than Palantir Technologies › Palantir Technologies (NASDAQ: PLTR) has been an unstoppable stock to own in recent years. So far in 2025, it's trading up more than 62% as of this writing. It continually hits new heights as investors remain bullish on its performance. The data analytics company has been growing its revenue at a fast pace thanks to its artificial intelligence (AI) platform. With AI, its platform has unlocked more ways for businesses to benefit from greater efficiency and automation. But there's one 8-letter word that investors should pay close attention to when reviewing the company's earnings numbers, as it can make a profound impact on whether you think the stock is a good buy or not. It's not uncommon for companies to adjust their earnings numbers, especially when there are unusual items that can affect their top and bottom lines. Oftentimes, when analysts look at whether a company did well or not, they rely on adjusted earnings numbers to determine whether it beat expectations or not. This can reduce the possibility of a one-time gain or loss resulting in a big beat or miss. With Palantir, however, the company arguably relies too much on adjusted numbers when reporting its figures. Not only is there an adjusted earnings number, but there are also adjusted operating margins and adjusted free cash flow. In its most recent quarter, for the period ending March 31, Palantir's income from operations was $176 million. But after adding back stock-based compensation plus the employer taxes related to that, its adjusted income from operations more than doubled, to nearly $391 million. Now, its adjusting operating margin becomes an impressive 44%, versus the 20% it would have been without those adjustments. It then uses this adjusted margin in calculating its Rule of 40 score, which comes out to 83% and looks impressive for growth investors. The problem with this is that stock-based compensation is a relevant expense that still matters; just because a company paid an expense with stock rather than cash doesn't mean it should be ignored. While Palantir's business is growing its bottom line, the big problem is that it has a high share count. With more than 2.3 billion shares outstanding, its unadjusted net income of $214 million this past quarter amounted to just $0.09 in per-share profit, which pales in comparison to its stock price, which closed at $123.31 last week. And by issuing shares to pay its expenses, that results in a larger share count. Palantir would need to drastically accelerate its growth or reduce its share count (an incredibly expensive thing to do now while the stock is trading near its all-time highs) for its price-to-earnings multiple to come down. Currently, the stock trades at over 500 times its trailing earnings. Retail investors have flocked to Palantir's stock due to its impressive growth. But on a per-share basis, it looks incredibly expensive. And the big risk is that it could be due for a sizable correction if there's a downturn in the markets or a single bad earnings report. Despite its seemingly strong business, there can be a lot of volatility to come with owning this stock, due to its incredibly high valuation. When a stock trades at an enormous premium, that means expectations are high. And with Palantir, it's priced to perfection. Just because the business is growing at a fast rate doesn't mean it's a good buy at any price. There are many better-priced growth stocks out there to consider than Palantir. Before you buy stock in Palantir Technologies, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Palantir Technologies wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $639,271!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $804,688!* Now, it's worth noting Stock Advisor's total average return is 957% — a market-crushing outperformance compared to 167% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of May 19, 2025 David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy. The 8-Letter Word Palantir Investors Shouldn't Overlook When Analyzing Its Numbers was originally published by The Motley Fool
Yahoo
22-05-2025
- Business
- Yahoo
C3.ai, Inc. (AI): A Bear Case Theory
We came across a bearish thesis on Inc. (AI) on Substack by Stefan Waldhauser. In this article, we will summarize the bears' thesis on AI. Inc. (AI)'s share was trading at $24.16 as of May 16th. continues to face deep operational and financial challenges despite an improvement in revenue growth to 24% over the trailing twelve months. The company's persistent inability to generate positive cash flow and its low Rule of 40 score of 14% point to a business model that remains fundamentally inefficient. Its net loss, hovering near 80% of revenue, highlights ongoing profitability concerns. A key vulnerability is its reliance on a small number of large customers, particularly Baker Hughes, which contributes about 20% of total revenue. With the contract up for renewal and potentially expiring by June 2025, any disruption could significantly impact revenue base and stock performance. The outlook for fiscal year 2025 remains bleak, with an expected $300 million loss on less than $400 million in sales. In light of these projections, the current $2.5 billion market capitalization appears unsustainable, especially considering the stock's 30% decline year-to-date. The situation is further worsened by massive insider selling, including by CEO Tom Siebel and other executives, signaling a lack of internal confidence. Despite partnerships with Microsoft Azure and McKinsey, has failed to establish a scalable, profitable business model even after 15 years. This has not gone unnoticed by the market—short interest remains elevated, reflecting bearish sentiment and a growing consensus that the stock remains overvalued. Unless executes a significant strategic pivot or secures a game-changing contract, investors face substantial downside risk with limited near-term upside, making it a cautionary tale in the crowded AI software space. Inc. (AI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 25 hedge fund portfolios held AI at the end of the fourth quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of AI as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock. Disclosure: None. This article was originally published at Insider Monkey. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
16-05-2025
- Business
- Yahoo
FIVN Q1 Earnings Call: AI Drives Growth and Margin Expansion Amid Cautious Outlook
Call center software provider Five9 (NASDAQ: FIVN) reported Q1 CY2025 results beating Wall Street's revenue expectations , with sales up 13.2% year on year to $279.7 million. The company expects next quarter's revenue to be around $275 million, close to analysts' estimates. Its non-GAAP profit of $0.62 per share was 27.9% above analysts' consensus estimates. Is now the time to buy FIVN? Find out in our full research report (it's free). Revenue: $279.7 million vs analyst estimates of $272.5 million (13.2% year-on-year growth, 2.6% beat) Adjusted EPS: $0.62 vs analyst estimates of $0.48 (27.9% beat) Adjusted Operating Income: $40.31 million vs analyst estimates of $31.1 million (14.4% margin, 29.6% beat) The company reconfirmed its revenue guidance for the full year of $1.14 billion at the midpoint Management raised its full-year Adjusted EPS guidance to $2.76 at the midpoint, a 6.2% increase Operating Margin: -1.9%, up from -8.4% in the same quarter last year Free Cash Flow Margin: 12.5%, similar to the previous quarter Net Revenue Retention Rate: 107%, down from 108% in the previous quarter Annual Recurring Revenue: $1.06 billion at quarter end, up 11.6% year on year Billings: $275.3 million at quarter end, up 12% year on year Market Capitalization: $2.11 billion Five9's first quarter results reflected ongoing momentum in its enterprise subscription business and notable improvements in profitability, as management cited strong adoption of its artificial intelligence (AI) solutions and disciplined expense controls. CEO Mike Burkland pointed to a 32% year-over-year increase in enterprise AI revenue and highlighted customer success stories that demonstrated measurable efficiency gains, such as a fast-food chain achieving a nearly 40% improvement in call containment rates. Looking ahead, management reconfirmed annual revenue guidance but expressed caution given ongoing macroeconomic uncertainty and lengthening sales cycles in large enterprise deals. CFO Bryan Lee noted, "Given recent heightened macro uncertainty, we believe it is important to take a slightly more prudent stance in terms of our guidance," while raising full-year adjusted EPS guidance on the back of cost-saving initiatives and improved operating leverage. The company continues to invest in AI and go-to-market strategies, aiming to sustain profitable growth and achieve its medium-term "Rule of 40" targets. First quarter performance was underpinned by strength in Five9's enterprise AI offerings, ongoing cloud migration, and operational discipline. Management attributed outperformance to robust demand for AI-powered customer experience solutions and successful upsell initiatives in the installed base, while also flagging external factors affecting international growth. AI Product Momentum: Management emphasized accelerating adoption of its AI suite, with over 20% of enterprise new logo bookings containing AI and enterprise AI revenue up 32% year over year. The AI blueprint program, designed to help customers identify and deploy AI use cases, contributed to both new sales and upsells. Cloud Migrations Continue: The company noted that the shift from on-premise to cloud-based contact center solutions remains a major driver of growth, especially among large enterprise customers. Management described the upper end of the market as "the largest and least penetrated part of the market and the fastest growing category of our business." Operational Review and Cost Controls: Five9 completed an operational review, resulting in a 4% workforce reduction to streamline expenses and focus investment on AI and go-to-market initiatives. This contributed to margin expansion and improved cash generation. Strategic Partnerships Deepen: The company launched Five9 Fusion, a new native integration with Salesforce, and expanded collaborations with ServiceNow, Google Cloud, and IBM. These partnerships are designed to enhance AI-powered customer experience offerings and broaden market reach. International Headwinds: Management reported some resistance among international customers to U.S. vendors, largely driven by geopolitical factors. They indicated this was more pronounced in new logo opportunities than in the existing customer base. Management's outlook for the remainder of the year centers on continued investment in AI innovation, targeted go-to-market initiatives, and careful monitoring of macroeconomic headwinds, particularly in international and large enterprise segments. AI Adoption and Monetization: The company expects further growth from its AI offerings, with management indicating that higher AI mix should support gross margin expansion and long-term profitability. Sales Cycle and Market Conditions: Management highlighted lengthening sales cycles for large enterprise deals and increased caution among buyers, which could impact deal timing and revenue conversion. Cost Discipline and Margin Focus: Ongoing expense management, including the recent workforce reduction, is expected to support margin improvement and higher non-GAAP EPS, even as the company continues to invest in strategic initiatives. Robert Morelli (Needham): Asked if first quarter subscription revenue would be the trough for the year; management responded that revenue guidance assumes muted seasonality and increased prudence but was not specific about quarterly trends. Siti Panigrahi (Mizuho): Inquired about elongated sales cycles in enterprise, especially internationally. Management confirmed longer cycles in large deals and noted some international resistance but said most deals merely slipped to the next quarter. Raimo Lenschow (Barclays): Questioned how AI is impacting customer decision-making amid uncertainty; CEO Burkland said AI is accelerating adoption, with 50% of customers in the AI blueprint program purchasing AI products. Samad Samana (Jefferies): Asked about co-sell dynamics with partners and AI's impact on gross margins; management described active co-sell arrangements and noted that AI revenue carries higher margins, benefiting overall profitability. Rishi Jaluria (RBC): Pressed for clarity on what counts as AI revenue and whether increased AI adoption could pressure gross margins; management specified only advanced AI products are included and that AI is a margin tailwind, not a headwind. In the quarters ahead, the StockStory team will monitor (1) the pace of enterprise AI adoption and its impact on subscription growth, (2) progress of new strategic partnerships—particularly the Salesforce Fusion integration—and associated pipeline expansion, and (3) signs of stabilization or improvement in international and large enterprise sales cycles. Additionally, we will track management's ability to maintain cost discipline while investing for long-term growth. Five9 currently trades at a forward price-to-sales ratio of 2.1×. At this valuation, is it a buy or sell post earnings? The answer lies in our free research report. The market surged in 2024 and reached record highs after Donald Trump's presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025. While the crowd speculates what might happen next, we're homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver's seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 176% over the last five years. Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today. 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