Why Are Shares of Zscaler Crashing After Earnings?

this scaler just released their latest quarterly figures a pretty good quarter beats across the board for a quarter but as we've seen with plenty of other companies it's not enough guidance needs to be good as well especially for expensive stocks and so at the time of making this video the scaler stock is down 16% now most of you that have been following the channel for a while you know that three months ago I did a z scaler earnings video as well and Z scaler was actually up I think 15% or so so now we're going back to well numbers not seen since 3 months ago which was exactly the day before Z scale reported the stock was around $158 or so so now we're three months later you get more numbers more information and so maybe you might be making better decisions like I said this is not a cheap stock right now has a Ford PE of 58.9 times and by the way this is not slow growing company yes maybe growth is slowing down a little bit but this is not a slow growing company and it's not expected to be one either in the future still over 20% year-over-year growth top and bottom lines of course when you're coming from 30 40% growth then yes growth is decelerating and the premium that you're putting on this stock needs to come down as well if we're looking at what has happened before well before the stock was even more expensive right if you compare it to its 5year me or fouryear mean I should say it's now much much cheaper than before but it's not cheap although although if you compare it to other cyber security companies right if you look at forp for Palo Alto 56.6 times Crow strike 72.5 times ibida palto 41 times crowd strike 63 times so if when you compare it to its peers it's not that crazy to be valued at at this premium it's just that the sector is very very expensive right now and this is very important to know not just for cyber security or Z scalers whatnot every other industry when you look at a certain company not just compare it to the average Market no also compare it to its Pierce because let's say right now with this scaler you would have thought oh it's super expensive no buy might not be a buy either as you will see in just a second but when we look at its competitors it's competitors are also not trading at cheap valuations so maybe maybe this is the norm maybe this is the norm of course we would always always like to buy at cheaper prices yeah that's just how we work right anyways before continuing if you enjoy these type of videos leave it a thumbs up subscribe if you have not we really appreciate that if you want to support me even further do check out the link down in the description and in the pink comment you the top 10 best stocks to buy now or go to f.com investor thank you very much all right so let's start here here with a couple of comments we ended a successful fiscal 2024 with Q4 results exceeding the high end of our guidance across all metrics customers adoption of our zero trust exchange platform is stronger than ever and I'm thrilled to share that we have achieved a major Milestone with our Cloud platform surpassing over half a trillion transactions daily I'm excited about the year ahead as we enter fiscal 2025 with a strong goto Market machine and a high pace of innovation so if we look at the results for Q4 the results again exceeded guidance for most of the stuff here so Revenue increase 30% year-over-year calculated Billings is up 27% calculated current Billings also up 27% gross margin of 81.1% operating profit of $128 million while exceeding their own Guidance with a 21.5% margin EPS of 88 cents 38% growth year-over-year also well exceeding guidance and a free cash flow margin of 23% a dollar based net retention rate of 115% and operating profit is up 48% year-over-year if we look at the fiscal year because their fiscal 224 is over they're now entering q1 fiscal year 2025 for them Revenue increased 34% year-over-year calculated Billings of 29% year year operating profit margin of 20.4% EPS of $319 they were expecting $220 to $225 and a free cash flow margin of 27% so again a tremendous year for them great growth now of course as you will see in the guidance for q1 fisc 2025 well growth rates are coming down again as for the rule of 60 now for the fourth consecutive year above 60% so here 34% Revenue growth year-over-year with a 27% free cash flow margin reaching 61% rule of 64 fiscally year 2024 now SAS companies aspire to achieve rule of 40 they say this of course because Revenue growth for next year is not going to be 34% which you can see right here right for the next quarter they expect Revenue to grow 22% year over-year gross margin of 80% operating profit margin of between 18.8 to 19.2% earnings per share between 62 and 63 cents but for the fiscal year 2025 guidance you have to take into consideration that now non-gaap tax rate is going to be 23% for the fiscal year 2025 so that is higher but here as well you can see revenue for the fiscal year 2025 only growing only growing of course compared to what we've seen before this is much lower only growing 20 to 21% year-over-year calculated Billings growing 19 to 20% year-over year and operating profit margin of between 20 20.2 to 20.8% which is better than fiscally 2024 and so if we compare it to what the market was expecting friends here our consensus gurus show us the misses for q1 and for the fiscal 2025 the misses come from operating income a Miss of 3.4% operating margin a Miss of 66 basis points and an EPS Miss of 16.7% same for the fiscal 2025 now again it's quite straight that the analysts have not taken into consideration that well the tax rate can go up or will go up maybe communication from management wasn't clear but this could definitely explain these huge huge differences here anyways continuing here on a couple of comments that were mentioned in the earning score or maybe one comment and this is with regards to of course the Microsoft crowd strike related outage in July and while Z scaler is designed in a way that's highly available and frankly relied upon by customers as an inline solution but the analyst was wondering if that event in any way from what they could tell has changed the way customers are thinking about the Cyber strategies and Z scalers place within that to which the answer is this it's a good question after the crowd strike outage customers are more focused on resilience which is our strength in fact I personally got a lot of calls right after the incident they wanted to know about what we are doing about it that we ended up personally inviting actually WI invitation briefings to a thousand or so largest customers was surprised to see that within a matter of a week or so about 700 customer registers for the briefings they ended up doing multiple of them of course this is great to hear but eventually you would like to see this reflected in the numbers but as we know we've talked about this with Sentinel one with Crow strike these things take time we also already have a couple of comments from some analysts most of them are not as bearish as the market right now so Piper solid end to fiscal year overshadowed by fiscal 2025 Billings seasonality despite the four quarter upside across all metrics a backend weighted Billings mix due to numerous factors sent shares sliding in the aftermarket and raised the prior month's gains as underlying Trends towards larger deals were solid we have confidence in the company's ability to execute and believe shares set up well from here with a price target of $215 as for jeffes they talk here of course also about Billings growth of 27% compared to consensus of 24% that was also overshadowed by the first half of 2025 guide of just 133% year-over-year growth while go to market changes and previously weaker first half results way we think fiscally 2025 potential billing trajectory remains similar low to mid-20s growth implying 3 to 5% beat versus the 19% guide that said guidance justifiably implies competitive and T penetration cues we still view Z scaler as a sassy leader in the early Market Innings and shares should find a floor at $150 has a price target of $225 and so if we're looking at the chart right now of course previously like I said the stock was closer to $200 it seems that 200 was a rejection Point twice already now we're going back down closer to where we were at the start of August that Black Monday August 5th and also closer to well the previous earnings report like I said at the start this video maybe maybe 155 or so could be the bottom let's see I mean previously we've stayed around those prices for quite a while so let's see what happens this time but yeah definitely 150 155 could be a good area to start adding and so overall to conclude I think this was an excellent quarter by the company I think the company has a bright future remember this is still a very very young company compared to all the other players in that market but I do feel that it was again one of those examples of being priced to Perfection and when you don't deliver especially not on guidance well you're going to get hit and get hit quite hard for long-term investors I do think some opportunities will arise especially since we are in September as we spoken about it yesterday September is usually not a good month for the stock market so maybe some good opportuni ities for long-term investors don't chase the stock wait for a maybe broader Market rebound before jumping in so that's about it for me of course to share your thoughts down in the comment section below like subscribe to all of that and I see you all in the next one bye-bye [Music]