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Zscaler Faces Stock Drop Amid Slowing Revenue Growth

Zscaler's fourth-quarter earnings reveal strong revenue growth, but a lower-than-expected forecast for fiscal 2025 leads to a significant stock decline. Investors are weighing its future prospects amid falling losses and steady cash flow.

Date: 
AI Rating:   4

Earnings Per Share (EPS)

No specific Earnings Per Share (EPS) figures were provided for Zscaler in the text. However, it is noted that the company reported to be close to GAAP profitability, indicating potential improvements in EPS if the trend continues.

Revenue Growth

Zscaler reported fiscal Q4 revenue of $593 million, a 30% increase year-over-year. Despite this strong growth, the forecast for fiscal Q1 2025 is only $605 million, which implies a slower growth rate of 22%. This slower projection could negatively affect investor sentiment, as the decline in growth rate might suggest difficulties in sustaining past performance.

Net Income

The net GAAP loss was reported at $15 million for the quarter, an improvement from a $31 million loss a year earlier. While this shows progress, the fact that the company is still posting losses may concern some investors.

Profit Margins

The text does not provide specific profit margin figures, but the improved loss situation implies a potential for better margins in the future if revenues continue to increase and costs are managed effectively.

Free Cash Flow (FCF)

Zscaler generated $136 million in Free Cash Flow during the quarter, indicating a strong ability to generate cash. This is a positive sign for investors, as it suggests financial stability despite current losses.

Return on Equity (ROE)

The text does not include any information regarding Return on Equity (ROE), leaving this metric unassessed.

Conclusion

The analysis indicates a blend of positive and negative factors that could affect Zscaler's stock price. The considerable revenue growth points towards market potential, while slowing growth projections and an existing loss raise red flags that may dissuade some investors. The firm’s strong cash flow provides a cushion against losses, but how investors interpret these mixed signals will ultimately dictate the stock's performance.

Stocks:  ZS