HomeBusinessShares of Zscaler are down 12% after deal delays overshadow elevated prospects

Shares of Zscaler are down 12% after deal delays overshadow elevated prospects

The share of Zscaler Inc. fell in the extended session Thursday after the cybersecurity firm joined the chorus of cloud software companies worried about reluctant recession-suspicious customers and touting upsells to loyal customers while raising their outlook and announcing layoffs.

Zscaler ZS,
shares fell 12% after hours, following a 4.4% gain in the regular session to close at $134.13 after the company saw a slowdown in billing in the current quarter.

“For the third quarter, we expect bills to be down approximately 9% sequentially compared to the mid-single-digit declines we’ve seen in recent years,” Remo Canessa, chief financial officer of Zscaler, told analysts on the call. .

For the second quarter, Zscaler reported bills, or revenue plus deferred revenue accrued for the quarter, of $493.8 million in the second quarter, while Wall Street expected bills of $491 million. A 9% drop would be about $449.4 million, while Street expects $448.6 million.

“In January, we saw more scrutiny on budgets than in December, resulting in additional delays on major deals,” Jay Chaudhry, chairman and CEO of Zscaler, told analysts. “These deals have not gone away and customers are taking longer to make decisions and need additional approvals.”

As has been the case with many cloud software vendors this earnings season, companies are taking more time to scrutinize the length of deals or subscriptions and cloud software companies are streamlining their own operations.

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The company said in a filing with the Securities and Exchange Commission that it will cut its global workforce by 3%, or about 150 positions, by the end of its fiscal year 2023, which ends in July, and an expense of $8 million to $ charges 10 million. Zscaler last reported a headcount of 4,975.

Meanwhile, the company expects full-year earnings of $1.52 to $1.53 on sales of about $1.56 billion and bills of $1.94 billion to $1.95 billion.

Zscaler last forecast adjusted earnings of $1.23 to $1.25 per share on sales of approximately $1.53 billion and bills of $1.93 billion to $1.94 billion for the year, and Analysts estimate $1.24 per share on revenues of $1.53 billion and bills of $1.93 billion for the year.

Zscaler forecast adjusted earnings of about 39 cents per share on revenue of $396 million to $398 million for the fiscal third quarter. Analysts polled by FactSet had an estimate of 31 cents per share on revenues of $387.3 million and bills of $448.6 million for the quarter.

The company reported a second-quarter tax loss of $57.5 million, or 40 cents per share, compared to a loss of $100.4 million, or 71 cents per share, in the same period last year. Adjusted net income, excluding share-based compensation and other items, was 37 cents per share, compared to 13 cents per share in the same period a year ago.

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Revenue increased from $255.6 million in the same quarter last year to $387.6 million, the company said.

Analysts polled by FactSet had forecast earnings of 29 cents per share on revenue of $340.7 million, based on Zscaler’s forecast of 29 cents to 30 cents per share on revenue of $365.5 million to $366 million.

Read: These “Three Horsemen” of cybersecurity are the most likely to weather declining demand, says Morgan Stanley

Cloud software vendors are still trying to win deals in a cost-conscious environment as companies slowly spend a looming recession. Adding new services or modules to the platform then sells and encourages customers to add more modules or functionality to their custom platform.

That’s the model identity management software company Okta Inc. OKTA supports,
which said late Wednesday that most of its business was upsells and cross-sells to established clients, and Wall Street said the company was “partly out of the woods.”

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Much of Zscaler’s report mirrored Okta’s: customer reluctance to close deals in the uncertain economic environment, longer time to close deals, and over 90% customer retention rates enabling the platforms to upsell to existing customers.

In January, Morgan Stanley downgraded Zscaler and other cybersecurity names on the belief that the “surge” in cybersecurity is over and that investors need to become more selective in the sector.

Read: Cloud software is a ‘fight for a knife in the mud’ and Wall Street sours the only sector that was winning

Meanwhile, human-resources cloud software company Workday Inc. WDAY,
said earlier this week that despite a setback it was still on track for growth targets and offering conservative guidance.

That dynamic was also visible in the CRM of Salesforce Inc.
earnings report, another cloud software company this week that promised profitability and cut jobs, giving the stock its biggest boost since 2020.

As of Thursday’s close, Zscaler’s stock is down 47% over the past 12 months, compared to a 9% loss from the S&P 500 Index SPX,
down 17% from the tech-heavy Nasdaq Composite Index COMP,
and a 20% drop on the ETFMG Prime Cyber ​​Security ETF HACK,

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