Zscaler (NASDAQ:ZS), a cloud-based cybersecurity company, reported strong second quarter fiscal 2025 results (fiscal year ending in July), with earnings of $0.78 per share on sales of $648 million. These figures surpassed analyst expectations of $0.69 per share and $634 million in revenue. Additionally, Zscaler’s Q3 forecast exceeded market predictions.
The company’s success is attributed to growing adoption of its AI-enhanced Zero Trust security platform. This positive performance is reflected in Zscaler’s stock price, which rose 5% in pre-market trading.
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Zscaler Q2 FY25: Key Financial Metrics
In the second quarter, Zscaler demonstrated robust financial performance with its revenue reaching $648 million, representing a 23% year-over-year increase, primarily fueled by increased adoption of its Zero Trust offerings. The company’s annual recurring revenue (ARR) exceeded $2.7 billion at the end of Q2, growing approximately 23% year over year. The company’s forward-looking indicator, Remaining Performance Obligations (RPO), showcased strong potential by expanding 28% year-over-year to $4.6 billion. Zscaler expanded its high-value customer base, reaching 620 clients with over $1 million in annual recurring revenue (ARR) and 3,291 with over $100,000 in ARR, up from 585 and 3,165 in the previous quarter.
Beyond top-line growth, Zscaler also made significant strides in operational efficiency. The company’s adjusted operating margin improved substantially, widening by 200 basis points to 22% in Q2. This combination of revenue expansion and margin enhancement, partly offset by a 2% rise in total shares, translated into a 24% increase in earnings per share, which reached $0.78 for the quarter.
For Q3, Zscaler anticipates earnings of at least $0.75 per share on roughly $666 million in sales, surpassing Wall Street’s expectations.
Zscaler’s Valuation: Potential For Further Growth
Zscaler’s stock, currently priced at $207, is trading at approximately 14 times its trailing revenues, slightly below its three-year average price-to-sales (P/S) ratio of 16x. Despite the recent stock price appreciation, several fundamental factors suggest potential for further growth.
The company’s robust performance indicators — including a strong revenue backlog, sequentially rising customer base, and improving profitability — justify a higher valuation multiple. Despite the recent 5% stock surge in the pre-market, the current valuation appears to have potential for additional growth. Zscaler’s underlying business fundamentals continue to demonstrate resilience and strategic momentum in the competitive cloud-based cybersecurity market. Notably, the $227 average of analysts price estimate for ZS stock implies a P/S ratio of 15, and it reflects an upside potential of 10% after considering today’s move.
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