Cybersecurity firm Zscaler’s shares fall on dour annual forecasts

:Zscaler shares tumbled about 16 per cent on Wednesday following the cybersecurity firm’s downbeat annual forecast, as macroeconomic challenges slowed spending by its customers.
Zscaler’s management said that the challenges impacted the billings from three-year contracts, resulting in a lower growth expectation for the first half of fiscal 2025.
The bleak forecasts prompted at least 10 brokerages to cut their price targets on the stock, with Needham making the biggest revision by cutting it to $235 from $290.
Enterprises are slashing down on security spending as high interest rates and a sluggish economy weigh on the overall budgets.
Zscaler’s peers Palo Alto Networks and SentinelOne, however, boosted expectations with strong annual revenue forecasts as CrowdStrike’s customers reevaluated their options in the aftermath of a global IT outage.
If losses hold, Zscaler will be on track to shed more than $4 billion from its market valuation of $29.20 billion as of last close.
The company expects full-year revenue in the range of $2.60 billion to $2.62 billion, while analysts’ estimated $2.63 billion, according to LSEG data.
“Contracted billings (scheduled billings from prior-year contracts), a significant and growing portion of total billings, are projected to grow 7 per cent in 1H2025, reflecting the impact of past macro challenges that have led to a historically lower growth rate in the first half,” Rosenblatt Securities analyst Catharine Trebnick said in a note.
Zscaler on Tuesday also forecast full-year adjusted net income of $2.81 to $2.87 per share, compared with estimates of $3.33.
Still, analysts at Bernstein said demand could pick up for Zscaler.
“New customer demand won’t remain muted by poor macro forever,” Bernstein said.
Zscaler expects business to be more weighted towards the second half of the year with contract billings expected to grow 23 per cent in that period.
“We expect sales productivity to continue to improve with the second half stronger than the first,” finance chief Remo Canessa said in a post earnings call.