Introduction: Financial Momentum and Strategic Expansion#
Zscaler, Inc. (ZS continues to demonstrate robust growth and strategic agility in the cybersecurity sector, highlighted by its recent quarterly financial results and strategic acquisitions. Trading at $289.04 with a market capitalization of approximately $45 billion, Zscaler's financial momentum is underpinned by accelerating billings and sustained revenue growth, reinforcing its leadership in cloud security and Zero Trust solutions.
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Financial Performance: Revenue Growth and Profitability Trends#
In the fiscal year ended July 31, 2024, Zscaler reported revenue of $2.17 billion, marking a significant +34.07% year-over-year increase from $1.62 billion in FY23. This growth trajectory aligns with the company’s three-year revenue CAGR of approximately 47.68%, underscoring consistent top-line expansion. Gross profit rose to $1.69 billion, maintaining a strong gross margin of 77.99%, reflecting operational efficiency in delivering cloud-native security services.
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Despite positive revenue momentum, Zscaler reported a net loss of $57.71 million (-2.66% net margin) for FY24, a notable improvement from the $202.34 million net loss (-12.51% net margin) in FY23. This narrowing loss trend is indicative of improving operational leverage, as operating expenses increased to $1.81 billion but at a slower rate relative to revenue growth. The company’s EBITDA turned positive to $64.79 million (2.99% margin) compared to a negative EBITDA in prior years, signaling progress toward profitability.
Table 1: Select Financial Metrics FY21 to FY24#
| Metric | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|
| Revenue (Billion USD) | 0.67 | 1.09 | 1.62 | 2.17 |
| Gross Margin (%) | 77.67% | 77.79% | 77.56% | 77.99% |
| Operating Income (Million USD) | -207.81 | -327.43 | -234.62 | -121.48 |
| Net Income (Million USD) | -262.03 | -390.28 | -202.34 | -57.71 |
| EBITDA (Million USD) | -167.36 | -277.58 | -76.72 | 64.79 |
Strategic Acquisitions: Enhancing AI and Security Operations#
A pivotal element of Zscaler’s growth strategy is its acquisition of Red Canary, a leader in AI-powered Security Operations Center (SOC) and Managed Detection and Response (MDR) services. This strategic move expands Zscaler’s Zero Trust platform capabilities, integrating advanced threat detection and proactive response mechanisms driven by AI technologies.
The incorporation of Red Canary’s AI-driven SOC augments Zscaler’s market proposition by delivering unified, cloud-native security solutions that address increasingly sophisticated cyber threats. This acquisition supports Zscaler's positioning as a comprehensive security provider, leveraging AI to reduce incident response times and enhance threat intelligence.
Innovation and Market Leadership: AI, IoT Security, and Zero Trust#
Zscaler’s commitment to product innovation is evident in its development of AI and GenAI-powered features within its Zero Trust Exchange platform. By harnessing AI for real-time data analysis and anomaly detection, Zscaler enhances its ability to combat ransomware, IoT vulnerabilities, and cyber warfare tactics. This positions the company advantageously amid a cybersecurity landscape that increasingly demands intelligent, automated defenses.
The company's focus on IoT and Operational Technology (OT) security addresses a critical market need, incorporating granular access controls and continuous monitoring tailored to mitigate risks from connected devices—a sector growing rapidly due to digital transformation and smart infrastructure adoption.
Market Position and Competitive Landscape#
Zscaler is a recognized leader in the cloud security and Secure Access Service Edge (SASE) markets, characterized by its innovative Zero Trust architecture and extensive partner ecosystem. The company’s ability to scale flexible security solutions aligns with enterprise digital transformation initiatives, helping it capture growing market share.
Government cybersecurity spending, particularly in defense against cyber warfare and protection of critical infrastructure, presents a favorable tailwind. Zscaler’s offerings comply with government mandates, positioning it to capitalize on increased budget allocations in this sector.
Balance Sheet Strength and Cash Flow Generation#
Zscaler’s financial foundation is solid, with total assets rising to $4.7 billion and cash and equivalents of $1.42 billion as of FY24, up from $1.26 billion in FY23. The company maintains a manageable long-term debt level of $1.23 billion with a current ratio of 1.24x, indicating adequate short-term liquidity.
Free cash flow surged to $584.95 million (+75.33% YoY growth) in FY24, supported by net cash provided by operating activities of $779.85 million. This robust cash generation underpins Zscaler’s ability to invest in innovation, strategic acquisitions, and shareholder returns such as share repurchases, which totaled $52 million in FY24.
Table 2: Balance Sheet and Cash Flow Highlights FY23 vs FY24#
| Metric | FY23 | FY24 |
|---|---|---|
| Cash and Cash Equivalents (B) | 1.26 | 1.42 |
| Total Assets (B) | 3.61 | 4.7 |
| Long-Term Debt (B) | 1.18 | 1.23 |
| Current Ratio | 1.58 | 1.24 |
| Free Cash Flow (MM) | 333.62 | 584.95 |
| Operating Cash Flow (MM) | 462.34 | 779.85 |
| Common Stock Repurchased (MM) | 42.26 | 52 |
Valuation and Analyst Outlook#
Zscaler’s valuation remains elevated, reflecting investor confidence in its growth potential. The current price-to-sales ratio stands at 17.67x, with a forward price-to-earnings ratio projected at 94.27x for 2025, improving to 82.29x for 2026. These multiples underscore expectations for sustained revenue and earnings growth driven by its expanding market footprint and product innovation.
Analyst estimates project revenue growth to continue, with a compound annual growth rate (CAGR) of approximately 19.42% over the next five years, reaching an estimated $5.41 billion by FY29. Earnings per share are also forecasted to grow at a CAGR of 20.28%, reflecting anticipated improvements in profitability as scale and operating leverage improve.
What Drives Zscaler’s Growth in Billings and Revenue?#
Zscaler’s billings growth is fueled by its innovative Zero Trust platform, which addresses increasing enterprise demand for secure cloud connectivity. The company benefits from a strong upsell capability within its existing customer base, with 3,363 customers generating ARR of at least $100,000, growing at an 18% CAGR, and 642 customers exceeding $1 million ARR, growing at 27% CAGR.
The company’s focus on large enterprise clients and its ability to demonstrate ROI through security breach reductions and operational efficiencies support sustained customer retention and expansion. Additionally, strategic acquisitions like Red Canary and sales productivity initiatives contribute to billings acceleration.
What This Means For Investors#
Investors should note Zscaler’s improving profitability metrics alongside strong revenue and billings growth, which suggest the company is transitioning toward sustainable earnings generation. Its solid balance sheet and free cash flow position provide financial flexibility to support innovation and acquisitions, key drivers of its competitive advantage.
The integration of AI-powered security solutions and expansion into IoT/OT markets position Zscaler well to capitalize on evolving cybersecurity needs. However, the company’s high valuation multiples reflect growth expectations that warrant close monitoring of execution against strategic initiatives.
Key Takeaways#
- Zscaler’s FY24 revenue grew +34.07% YoY to $2.17B, with improving net losses and positive EBITDA.
- Strategic acquisition of Red Canary enhances AI-driven security capabilities and broadens the Zero Trust platform.
- Strong free cash flow generation (+75.33% YoY) and a robust balance sheet support continued investment.
- Market leadership in cloud security and SASE positions Zscaler to benefit from digital transformation and increased government cybersecurity spending.
- Valuation remains premium, reflecting high growth expectations with analysts projecting revenue CAGR of 19.42% through FY29.