Zscaler (ZS) Q2 Earnings Preview: Asset Exposure, EY Partnership, and Competitive Analysis#
The cybersecurity landscape is in constant flux, with evolving threats and increasing reliance on cloud-based solutions. In this dynamic environment, Zscaler, Inc. (ZS) continues to be a prominent player, offering a cloud-native platform designed to secure users, applications, and data. As of Monday, March 3, 2025, ZS is trading at $196.41, reflecting a +0.09% intraday increase, according to Monexa AI. This blog post provides a comprehensive analysis of Zscaler, examining its recent developments, market positioning, and what investors can expect as the company approaches its Q2 earnings report, scheduled for March 5, 2025.
Zscaler's Q2 Earnings: What to Expect?#
Analysts expect ZS to post quarterly earnings of $0.69 per share in its upcoming report, a year-over-year decline of 9.2%, according to Zacks.com. Revenues are expected to be $634.07 million, up 20.8% from the year-ago quarter. Key metrics Wall Street analysts are focusing on include revenues from direct customers and channel partners, billings, and remaining performance obligations (RPO).
| Metric | Q2 Estimate (Source: Zacks.com) | YoY Change | Notes |
|---|---|---|---|
| Earnings Per Share (EPS) | $0.69 | -9.2% | Year-over-year decline expected |
| Revenue | $634.07 million | +20.8% | Strong growth expected compared to the previous year |
| Billings | $728.57 million | N/A | Critical for assessing future revenue potential |
| Remaining Performance Obligations | $4.38 billion | N/A | Indicates contracted revenue not yet recognized |
| Revenue - Direct Customers | $63.60 million | +43.2% | Significant growth in direct customer revenue suggests strong adoption |
| Revenue - Channel Partners | $569.57 million | +18.5% | Steady growth through channel partnerships |
Meeting or exceeding revenue and billings expectations could positively impact the stock price. A significant deviation from consensus estimates could lead to volatility in the stock price. Investors should pay close attention to management's guidance for future quarters.
Asset Exposure Management: A New Era for Cyber Risk Mitigation#
On February 25, 2025, ZS announced the launch of Zscaler Asset Exposure Management. This new application extends the company's Continuous Threat Exposure Management (CTEM) offerings, designed to help organizations better manage their asset risk, commonly referred to as Cyber Asset Attack Surface Management (CAASM), according to GlobeNewswire.
The solution consolidates and correlates data from various sources to provide a comprehensive inventory of assets and identify security gaps. This capability is crucial for organizations seeking to mitigate cyber risk effectively. Zscaler Asset Exposure Management is built on technology acquired from Avalor and is a critical addition to Zscaler's broader CTEM strategy. The tool aims to enhance the way organizations manage their IT assets and security posture by continuously assessing and reducing security threats.
Deep Dive into Asset Exposure Management Features#
Zscaler Asset Exposure Management reflects a proactive approach to addressing the growing complexity of IT environments. As organizations adopt more cloud services and embrace remote work, the attack surface expands, making it more challenging to maintain a strong security posture. This new solution enables businesses to:
- Gain Complete Visibility: Obtain a precise inventory of all IT assets, including hardware, software, and cloud resources.
- Identify Security Gaps: Detect vulnerabilities, misconfigurations, and other weaknesses that could be exploited by attackers.
- Prioritize Remediation Efforts: Focus on the most critical risks, enabling security teams to address the most pressing issues first.
- Reduce Cyber Risk: Proactively mitigate threats and improve the overall security posture of the organization.
EY Alliance: Powering Enterprise Digital Transformation#
In a significant move to expand its reach within the enterprise market, ZS announced a strategic alliance with Ernst & Young LLP (EY US) on February 19, 2025. This partnership is designed to help organizations secure and simplify their digital transformations through cloud-delivered services, according to PRNewswire.
The alliance leverages EY's extensive consulting network and Zscaler's Zero Trust Exchange platform. This combination allows for the delivery of comprehensive solutions that address network architecture challenges and provide enhanced security. The partnership will enable EY to strengthen the security posture of its clients and offer them a centralized management platform. The alliance aims to address network architecture challenges with secured and simplified cloud-delivered services.
The collaboration between EY and ZS is particularly significant for several reasons:
- Expanded Market Reach: EY's vast client base provides Zscaler with access to a wider pool of potential customers, particularly in large enterprise accounts.
- Increased Deal Size: EY's ability to integrate Zscaler's solutions into broader digital transformation projects could lead to larger and more comprehensive deals.
- Enhanced Credibility: Partnering with a globally recognized consulting firm like EY enhances Zscaler's credibility and builds trust among conservative sectors such as financial services and healthcare.
- Simplified Digital Transformations: The alliance aims to streamline the process of adopting cloud-delivered security solutions, reducing complexity and IT costs for organizations.
- Focus on Zero Trust: The partnership emphasizes the adoption of Zero Trust principles, which is a key trend in cybersecurity.
Zscaler vs. Competitors: A Valuation and Growth Comparison#
The cloud security market is highly competitive, with several established vendors and new entrants vying for market share. Zscaler's primary competitors include CrowdStrike, Palo Alto Networks, and Akamai Technologies.
Zscaler's competitive advantages include its cloud-native architecture, zero-trust security model, and global reach. The company's focus on SASE (Secure Access Service Edge) also positions it well in the market. However, ZS faces challenges from established vendors, innovation pressure, economic headwinds, valuation concerns, and competition for talent.
| Company | Projected Revenue Growth (FY2025) | Key Strengths | Key Challenges |
|---|---|---|---|
| Zscaler (ZS) | 21-22% | Cloud-native, Zero Trust, SASE Leader | Intense competition, Economic sensitivity |
| CrowdStrike (CRWD) | 22% (ARR) | Endpoint Detection and Response, Strong ARR Growth | High valuation, Reliance on subscription model |
| Palo Alto Networks | 14% | Broad security portfolio, Established market presence | Slower growth compared to peers, Integration of diverse product lines |
| Akamai (AKAM) | 3.2% | Content Delivery Network, Web Application Security | Slower growth, Transition to cloud and security offerings |
Key Financial Metrics to Watch in Q2#
Analysts expect Zscaler's Q2 earnings to be $0.69 per share, a 9.2% year-over-year decline. Revenues are expected to be $634.07 million, up 20.8% from the year-ago quarter. Key metrics Wall Street analysts are focusing on include revenues from direct customers and channel partners, billings, and remaining performance obligations (RPO).
Based on current analyst consensus, the following are the expectations for Zscaler's Q2 earnings:
- Earnings Per Share (EPS): Analysts expect earnings of $0.69 per share.
- Revenue: Expected revenue is $634.07 million, up 20.8% year-over-year.
- Billings: Expected to reach $728.57 million.
- Remaining Performance Obligations: Expected to be approximately $4.38 billion.
- Revenue - Direct Customers: Expected to reach $63.60 million, a +43.2% change.
- Revenue - Channel Partners: Expected to reach $569.57 million, a +18.5% change.
It's important to note that these are estimates and actual results may vary. Investors should carefully review the official earnings release and listen to the earnings call for management's commentary.
Navigating the Cybersecurity Landscape: Challenges and Opportunities#
Investing in ZS, like any investment, carries certain risks. Investors should be aware of the potential challenges that could impact the company's performance.
- Competition: Intense competition from established vendors and new entrants in the cloud security market.
- Economic Headwinds: Potential economic downturns that could affect customer spending on security solutions.
- Innovation Pressure: The need to continuously innovate and adapt to evolving cyber threats.
- Execution Risk: The ability to successfully execute its growth strategy, including new product launches and partnerships.
- Market Volatility: Stock price fluctuations due to market conditions and earnings reports.
- CFO Transition: The transition of the CFO could create uncertainty in the short term.
Zscaler's Strategic Outlook: Innovation and Expansion#
ZS has several growth opportunities that could drive future expansion:
- Expanding Product Offerings: Launching new solutions and features to address evolving customer needs.
- Geographic Expansion: Entering new markets and growing its presence in existing markets.
- Strategic Partnerships: Forming alliances with other companies to expand its reach and capabilities.
- Enterprise Adoption: Increasing its penetration within large enterprise accounts.
- SASE Market: Leveraging its strong position in the SASE market to capture growth.
- Continued Innovation: Invest in R&D to stay ahead of the competition.
Zscaler's strategic initiatives are designed to capitalize on these growth opportunities.
- Investing in Innovation: Continuously developing new products and features to address evolving cyber threats.
- Expanding Sales and Marketing: Increasing its sales and marketing efforts to acquire new customers.
- Strategic Acquisitions: Acquiring other companies to expand its product portfolio and market reach.
- Focus on Customer Success: Providing excellent customer service to retain and expand its customer base.
- Leveraging the EY Partnership: Utilizing the EY alliance to expand reach into enterprise accounts.
- Enhancing Asset Exposure Management: The continued development of the new asset exposure management platform.
Conclusion: Zscaler's Position in the Evolving Cybersecurity Market#
ZS is well-positioned to continue its growth in the cloud security market. The company's focus on zero-trust architecture, combined with its expanding product offerings and strategic partnerships, provides a solid foundation for future success.
The upcoming Q2 earnings report will be a key event for investors, providing insights into the company's performance and outlook. Investors should carefully monitor the key metrics and listen to management's commentary. While ZS faces competition and risks, its strong market position and growth potential make it an attractive company in the evolving cybersecurity landscape. The company's focus on innovation and customer success should drive long-term value for shareholders.