Zscalers (NASDAQ:ZS) Q4 Sales Beat Estimates: A Zero Trust Powerhouse Emerges

The recent earnings report from Zscaler (NASDAQ:ZS) has sent shockwaves through the financial world, with the cloud security platform beating Wall Street's expectations in Q4 CY2024. Sales were up 23.4% year on year to $647.9 million, with the company's non-GAAP profit of $0.78 per share exceeding analysts' consensus estimates by 12.7%. But what's driving this impressive performance, and is now the time to invest in Zscaler?

Zscaler's success can be attributed to the growing adoption of Zero Trust and AI in the cybersecurity industry. As companies migrate to the cloud and employees work remotely, the demand for modern cloud-based network security software has increased. Zscaler's software-as-a-service offering helps companies securely connect to applications and networks in the cloud, providing better performance at a lower cost than traditional on-premise solutions.

The company's financial performance has been impressive, with sales growing at an incredible 41.2% compounded annual growth rate over the last three years. This growth has surpassed the average software company, indicating that Zscaler's offerings resonate with customers. In the latest quarter, the company reported robust year-on-year revenue growth of 23.4%, with revenue topping Wall Street estimates by 2.1%. Company management is currently guiding for a 20.4% year-on-year increase in sales next quarter.

Looking ahead, sell-side analysts expect revenue to grow 19.3% over the next 12 months, a deceleration versus the last three years. Despite the slowdown, this projection is admirable and indicates that the market sees success for Zscaler's products and services. The company's billings, a non-GAAP metric that shows how much money the company has collected from customers in a certain period, punched in at $742.7 million in Q4, with an impressive 22.1% year-on-year growth over the last four quarters.

While Zscaler's recent earnings report has been impressive, one quarter doesn't necessarily make the stock a buy. To determine whether Zscaler is a good investment, it's essential to consider the company's longer-term business quality and valuation. The customer acquisition cost (CAC) payback period, which measures the months a company needs to recoup the money spent on acquiring a new customer, is an important metric to consider. Zscaler's CAC payback period checked in at 38.4 months this quarter, indicating that the company is efficient at acquiring new customers. With its strong financial performance, growing demand for Zero Trust and AI, and efficient customer acquisition strategy, Zscaler is certainly a stock to watch in the cybersecurity industry.