Daily Stock Market Reports

Why Zscaler Stock Plunged Today

What happened

Shares of Zscaler ( ZS -15.77% ) fell 15.8% on Friday following the release of the cloud security leader’s fiscal 2022 second-quarter results. 

So what

Zscaler’s revenue surged 63% year over year to $255.6 million in the quarter, which ended on Jan. 31. That bested Wall Street’s estimates, which had called for revenue of less than $242 million. 

“The importance of our Zero Trust Exchange architecture has never been clearer to customers undertaking digital transformation,” CEO Jay Chaudhry said in a press release. He added:

Customers are not only gaining security advantages from our Zero Trust model but they are also reaping the benefits of faster innovation and economics from our global cloud, which is now processing more than 210 billion transactions per day.

A person is monitoring cybersecurity software on tablet and laptop computers.

Image source: Getty Images.

However, some analysts pointed to a deceleration in Zscaler’s billings growth as a reason for the stock’s sharp decline on Friday.  Billings represent the dollar amount Zscaler has invoiced its customers for subscriptions to its cloud platform and related support services. It’s an important metric that analysts use to forecast future revenue growth. The cybersecurity company’s billings grew 59% to $367.7 million in the second quarter. That was down from the 71% growth Zscaler enjoyed in the first quarter. 

Moreover, Zscaler’s losses mounted. It generated an operating loss of $83.9 million compared to $53.9 million in the year-ago quarter. Its net loss, in turn, increased to $100.4 million, or $0.71 per share, from a loss of $67.5 million, or $0.50 per share, in the prior-year period.

Now what 

Looking ahead, management expects fiscal 2022 full-year revenue of roughly $1.05 billion and billings of $1.37 billion. That would represent year-over-year growth of approximately 56% and 47%, respectively, and a further deceleration in Zscaler’s pace of expansion.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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