5. Zscaler, Inc. (NASDAQ:ZS)
Number of Hedge Fund Holders In Q2 2024: 45
Shares Short % Of Outstanding: 3.18%
Zscaler, Inc. (NASDAQ:ZS) is a midsized cybersecurity firm. Its products enable businesses to access externally managed applications without compromising their cybersecurity, ensure data protection in public clouds, and conduct identity management along with other IT operations. It is one of the worst-performing software and SaaS stocks this year as the shares are down 12.3% year to date. Central to Zscaler, Inc. (NASDAQ:ZS)’s woes are slowing growth and reliance on large contract sizes. This was evident after the firm’s fiscal fourth-quarter earnings release that saw Zscaler, Inc.’s (NASDAQ:ZS) shares drop by 18.9% as its outlook for the first half of fiscal year billings guidance was disappointing. Zscaler, Inc. (NASDAQ:ZS) tried to make up for this by guiding aggressively for the second half, but this only led to analysts wondering whether the firm could keep up with the heightened expectations. Consequently, the stock’s fate depends on Zscaler, Inc.’s (NASDAQ:ZS) ability to grow its billings and diversify its contract base.
Yet, these contracts also provide Zscaler, Inc. (NASDAQ:ZS) with a strong customer portfolio. Here’s what management shared during the Q2 2024 earnings call:
“I am pleased with the progress we’re making in transforming our go-to-market engine to an account-centric sales motion, which is contributing to growth of our large customers. We added nearly double the number of global 2000 logos in fiscal ’24 as compared to fiscal ’23.
We ended fiscal ’24 with approximately 35% of global 2000 companies and more than 40% of Fortune 500 companies as our customers. Our customer base spending $1 million plus annually grew by 26% year-over-year to $567 million and we ended the quarter with over 60 customers spending $5 million plus annually. We expect this large customer momentum to continue in fiscal ’25. Finally, I want to address the topic of cloud resilience that has come to the forefront due to the recent cloud outages of Microsoft and CrowdStrike. When customers rely on a mission-critical cybersecurity service, there’s no room for service interruptions. From inception, Zscaler has built a cloud security platform that has been seamlessly scaling with high-reliability and resilience.
Operating such a service is no trivial task and requires years of experience. Unproven vendors, including new entrants and legacy firewall companies, do not have this experience. By operating the world’s largest security cloud with superior resilience for over a decade, we have earned the trust of the largest enterprises. This is a clear differentiator for us and is driving the growth of our business. As an innovator and a market leader, in January 2023, we became the first cloud security company to introduce a business continuity service that enables customers to continue their operations even during catastrophic events. In conclusion, we are uniquely positioned to benefit from the confluence of two large secular growth drivers, Zero Trust security and AI.”
