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Zscaler, Inc.
Technology | Software - Infrastructure
⚡ Executive Summary
📊 THE BOTTOM LINE
Zscaler is a leading cloud-native cybersecurity provider, offering a Zero Trust Exchange platform to enterprise customers. Its SaaS model provides strong recurring revenue, addressing the evolving threat landscape and remote work trends. The business model is solid, focusing on secure access to internet and private applications.
⚖️ RISK VS REWARD
At current levels, Zscaler is trading at a premium valuation compared to some peers, with potential upside to the average analyst target of US$328.22. However, intense competition and macroeconomic sensitivity present notable risks. The risk/reward for growth-oriented investors appears balanced given its market leadership and high growth potential in a critical industry.
🚀 WHY ZS COULD SOAR
- • Expansion into new product areas like data security and operational technology (OT) security could significantly expand its total addressable market and revenue streams.
- • Increasing global cybersecurity spending, driven by persistent threats and regulatory compliance, provides a strong tailwind for Zscaler's Zero Trust solutions.
- • Continued migration of enterprise workloads to the cloud further solidifies the demand for Zscaler's cloud-native architecture, enhancing its market penetration.
⚠️ WHAT COULD GO WRONG
- • Intensified competition from large established players and emerging startups could lead to pricing pressure and slower customer acquisition.
- • Macroeconomic slowdowns could reduce enterprise IT budgets, impacting Zscaler's sales cycles and contract values, particularly for new deployments.
- • A failure to innovate rapidly and adapt to new cyber threats could erode its technological leadership and compromise its competitive advantage.
🏢 Company Overview
💰 How ZS Makes Money
- • Zscaler provides a cloud security platform (Zero Trust Exchange) to enterprise customers globally, eliminating the need for traditional perimeter security appliances.
- • Key offerings include Zscaler Internet Access (ZIA) for secure access to external applications and Zscaler Private Access (ZPA) for secure access to internal applications.
- • Revenue is primarily generated through subscription-based services, offering comprehensive cyberthreat protection, data security, and digital experience management.
- • The company targets large enterprises across diverse industries, helping them secure their networks and data in a cloud-first, mobile-first world.
- • Zscaler's Zero Trust architecture ensures that no user or device is trusted by default, providing granular access control and reducing the attack surface.
Revenue Breakdown
Zscaler Internet Access (ZIA)
50%
Secure access to external applications and web content.
Zscaler Private Access (ZPA)
30%
Secure, direct access to internal applications without VPNs.
Data Security & Other Emerging Products
20%
Includes DLP, CASB, IoT/OT security, and advanced threat protection.
🎯 WHY THIS MATTERS
Zscaler's subscription-based, cloud-native model provides predictable recurring revenue and strong customer retention by integrating security directly into the network path. This approach allows for continuous innovation and rapid deployment of new security features, maintaining a strong competitive edge in a distributed work environment.
⭐ Competitive Advantage: What Makes ZS Special
1. Cloud-Native Zero Trust Platform
Zscaler's platform is purpose-built for the cloud, enforcing security policies at the edge, closer to users and applications. This 'Zero Trust' model fundamentally changes traditional perimeter security by never trusting and always verifying, significantly reducing the attack surface. This architecture allows for unparalleled scalability, performance, and global reach, a capability difficult for legacy security vendors to replicate.
2. Extensive Global Footprint and Network Effect
Zscaler operates a massive global network of security points-of-presence (PoPs) that inspects billions of transactions daily. This extensive infrastructure provides a competitive moat, as it would be incredibly costly and time-consuming for new entrants to build a similar scale. The network's intelligence improves with every new user and threat detected, creating a data-driven network effect that enhances security for all customers.
3. Comprehensive Integrated Platform
Zscaler offers a broad suite of security services (ZIA, ZPA, DLP, CASB, Zero Trust Firewall) integrated into a single platform, eliminating the complexity and cost of managing multiple point solutions. This unified approach provides seamless policy enforcement and a consistent security posture across all user and application interactions, appealing strongly to large enterprises seeking to simplify their security operations.
🎯 WHY THIS MATTERS
These advantages combine to create a robust and scalable security infrastructure that is highly attractive to large enterprises. Zscaler's cloud-native and comprehensive approach allows it to adapt more quickly to evolving threats and customer needs than traditional security vendors, supporting its long-term growth and market leadership in the Zero Trust space.
👔 Who's Running The Show
Jay Chaudhry
Founder, Chairman, and CEO
Jay Chaudhry founded Zscaler in 2007, leveraging his extensive entrepreneurial experience in network security and SaaS. He has successfully guided the company's vision and strategy, establishing it as a leader in cloud security. His focus on innovation and the Zero Trust model has been instrumental in Zscaler's growth and market positioning.
⚔️ What's The Competition
The cloud security market is highly competitive and rapidly evolving, with a mix of established cybersecurity giants and agile, cloud-native startups. Competition comes from traditional network security vendors adapting to cloud, other Zero Trust Access (ZTA) providers, and large cloud service providers offering integrated security features. Key factors in customer choice include platform comprehensiveness, performance, ease of integration, and total cost of ownership.
📊 Market Context
- Total Addressable Market - The global cloud security market size was US$35.84 billion in 2024, projected to grow significantly, driven by digital transformation.
- Key Trend - The shift from traditional perimeter-based security to cloud-delivered, identity-centric Zero Trust architectures is shaping the competitive landscape.
Competitor
Description
vs ZS
Palo Alto Networks
A cybersecurity leader offering a broad portfolio including next-generation firewalls, cloud security (Prisma Cloud), and security operations.
Competes with Zscaler in cloud security by offering comprehensive solutions for securing cloud workloads and applications, often through a broader suite of security products.
CrowdStrike Holdings
A leader in cloud-delivered endpoint and workload protection, offering a unified platform powered by AI.
Competes with Zscaler by providing security for cloud workloads and identity, extending its reach into areas Zscaler also addresses with its Zero Trust solutions.
Fortinet, Inc.
A prominent cybersecurity vendor known for its extensive range of security solutions, including firewalls (FortiGate), SD-WAN, and cloud security offerings (FortiSASE).
Fortinet competes with Zscaler by providing integrated network and cloud security for hybrid environments, often appealing to customers seeking a single-vendor solution.
Market Share - Cloud Security Solutions Market Share (Estimated)
Zscaler
20%
Palo Alto Networks
25%
CrowdStrike
15%
Fortinet
10%
Others
30%
📊 Valuation & Analysis
📈 Wall Street Summary
Analyst Rating Distribution - 12 Hold, 29 Buy, 9 Strong Buy
12
29
9
12-Month Price Target Range
Low Target
US$215
-11%
Average Target
US$328
+35%
High Target
US$390
+61%
Current: US$242.68
🚀 The Bull Case - Upside to US$390
1. Expanding Zero Trust Adoption
High Probability
As enterprises increasingly adopt Zero Trust security models, Zscaler's platform is well-positioned to capture significant market share. This could drive revenue growth above current estimates, potentially leading to a 10-15% uplift in annual recurring revenue.
2. Product Portfolio Expansion & Cross-Selling
Medium Probability
Zscaler's continuous innovation in data security, IoT/OT, and secure digital experience management opens up new cross-selling opportunities with existing customers. Successful launches and adoption in these areas could add an additional US$500M to US$1B in annual revenue.
3. Strong Enterprise Demand & Large Deal Growth
High Probability
Zscaler's focus on large enterprise customers, who have complex security needs and larger budgets, means higher average contract values and greater revenue stability. Continued success in securing large, multi-year deals could accelerate revenue growth and improve profitability margins.
🐻 The Bear Case - Downside to US$215
1. Intense Competition & Pricing Pressure
Medium Probability
The cybersecurity market is highly competitive. Increased competition could lead to pricing pressure, forcing Zscaler to lower subscription rates, negatively impacting gross margins and revenue growth by 5-10%.
2. Macroeconomic Headwinds & IT Spending Cuts
Medium Probability
A global economic slowdown or recession could lead enterprises to cut back on IT and cybersecurity spending. This would extend sales cycles, delay deployments, and potentially reduce deal sizes, slowing revenue growth by 5-8% below projections.
3. Execution Risks in New Product Areas
Medium Probability
While expanding into new product areas offers growth opportunities, if Zscaler struggles to effectively integrate new offerings or gain traction, it could divert resources and impact overall profitability, potentially reducing EPS growth by 5-10%.
🔮 Final thought: Is this a long term relationship?
Zscaler operates in a mission-critical and secular growth industry, cybersecurity. Its cloud-native Zero Trust architecture provides a strong, durable competitive advantage that is difficult to replicate, positioning it well for the next decade of digital transformation. The company's consistent innovation and focus on large enterprises underpin its long-term potential. However, maintaining its leadership requires continuous investment in R&D to stay ahead of evolving threats and fierce competition. For investors confident in the sustained shift to cloud security and Zscaler's ability to execute, it offers a compelling long-term hold, assuming valuation normalizes over time.
📋 Appendix
Financial Performance
Metric
FY 2022
FY 2023
FY 2024
FY 2025 (Est)
FY 2026 (Est)
Income Statement
Revenue
US$1.09B
US$1.62B
US$2.17B
US$2.83B
US$3.56B
Gross Profit
US$0.85B
US$1.25B
US$1.69B
US$2.17B
US$2.73B
Operating Income
US$-0.33B
US$-0.23B
US$-0.12B
US$-0.13B
US$-0.07B
Net Income
US$-0.39B
US$-0.20B
US$-0.06B
US$-0.04B
US$0.57B
EPS (Diluted)
-2.77
-1.40
-0.39
-0.26
3.56
Balance Sheet
Cash & Equivalents
US$1.01B
US$1.26B
US$1.42B
US$1.34B
US$1.41B
Total Assets
US$2.83B
US$3.61B
US$4.70B
US$6.50B
US$7.15B
Total Debt
US$1.05B
US$1.21B
US$1.24B
US$1.83B
US$1.83B
Shareholders' Equity
US$0.57B
US$0.73B
US$1.27B
US$1.98B
US$2.18B
Key Ratios
Gross Margin
77.8%
77.6%
78.0%
76.8%
76.8%
Operating Margin
-30.0%
-14.5%
-5.6%
-3.9%
-2.0%
Free Cash Flow (US$B)
-68.08
-27.90
-4.53
0.85
1.02
Valuation Ratios
| Metric | Value | Description |
|---|---|---|
| P/E Ratio (TTM) | N/A | The trailing twelve-month price-to-earnings ratio measures the current share price relative to the company's earnings per share over the past year. A null value indicates negative or non-meaningful earnings. |
| Forward P/E | 68.17 | The forward price-to-earnings ratio measures the current share price relative to estimated future earnings per share, providing insight into market expectations for future profitability. |
| PEG Ratio | N/A | The Price/Earnings to Growth (PEG) ratio compares the P/E ratio to the earnings growth rate, offering a more complete picture of valuation for growth companies. Data not available. |
| Price/Sales (TTM) | 13.66 | The price-to-sales ratio compares the company's market capitalization to its total revenue over the past twelve months, often used for companies with volatile or negative earnings. |
| Price/Book (MRQ) | 19.44 | The price-to-book ratio compares the market value of a company's shares to its book value per share, indicating how much investors are willing to pay for each dollar of net assets. |
| EV/EBITDA | -551.09 | Enterprise Value to EBITDA is a valuation multiple that compares the total value of a company (including debt) to its earnings before interest, taxes, depreciation, and amortization. A negative value indicates negative EBITDA. |
| Return on Equity (TTM) | -0.02 | Return on Equity measures a company's profitability in relation to the equity invested by shareholders, indicating how efficiently the company is using shareholder investments to generate profits. |
| Operating Margin | -0.04 | Operating margin indicates how much profit a company makes from its core operations for every dollar of sales, providing insight into the company's operational efficiency. |
Peer Comparison
| Company | Market Cap (B) | P/E Ratio | P/B Ratio | Revenue Growth (%) | Operating Margin (%) |
|---|---|---|---|---|---|
| Zscaler, Inc. (Target) | 38.70 | N/A | 19.44 | 25.5% | -3.9% |
| Palo Alto Networks | 138.59 | 123.80 | 15.70 | 20.0% | 17.0% |
| CrowdStrike Holdings | 129.08 | N/A | 33.50 | 35.0% | -6.4% |
| Fortinet, Inc. | 64.64 | 35.77 | 81.11 | 18.0% | 22.0% |
| Sector Average | — | 79.78 | 43.44 | 24.3% | 10.9% |