In March, Billion Dollar Unicorn and enterprise cloud security firm Zscaler listed successfully on NASDAQ under the ticker ZS. Last week, its first earnings report as a public company blew past all analyst projections, and the stock jumped by 38%, making it the best performing US tech IPO of the year.

Zscaler’s Financials

Zscaler’s third quarter revenue grew 49% to $49.2 million driven by 73% jump in calculated billings. GAAP net loss was $8.8 million or $0.14 per share, compared to $7.6 million or $0.34 per share a year ago. Pro forma non-GAAP net loss per share was $0.02, compared to $0.05 a year ago. Analysts expected loss of $0.08 per share on revenue of $46 million.

Cash and cash equivalents were $287.4 million as of April 30, 2018.

For the fourth quarter, the company expects revenue of $50 to $51 million, non-GAAP loss of $6 to $7 million, and pro forma non-GAAP net loss per share of $0.05 to $0.06 using shares outstanding of about 120 million. Analysts forecast sales of $48.4 million on adjusted loss of $0.09 per share.

For the fiscal year 2018, Zscaler expects revenue of $184 to $185 million, non-GAAP loss of $19 to $20 million, and pro forma non-GAAP net loss per share of $0.17 to $0.18.

As per its S-1 filing, revenue in 2017 increased 57% to $125.7 million in 2017 with net loss of $35.5 million. Its revenue increased 50% to $80.3 million in 2016 from $53.7 million in 2015. Net loss was $27.4 million in 2016 and $12.8 million in 2015.

Zscaler’s Offerings

San Jose-based Zscaler was founded by serial entrepreneur Jay Chaudhury in 2008. After successfully flipping one of his many startups, Jay realized that his next challenge would be to create something that would have a lasting impact in the market. It was then that he came up with the idea of ZScaler. Jay wanted to offer web security in the cloud that would be able to cater to the rapidly growing mobile world by integrating point products. You can read my interview with him on his entrepreneurial journey.

Zscaler today has a highly scalable, multi-tenant, globally distributed cloud capable of providing inline inspection that offers a full range of enterprise network security services. It has designed a purpose-built three-tier architecture starting with its core operating system and adding layers of security and networking innovations over time. Its cloud platform is protected by over 100 issued and pending patents.

The company generates revenue primarily from sales of subscriptions to access its cloud platform, together with related support services. Its subscription pricing is calculated on a per-user basis. Subscription and support revenue is calculated ratably over the life of the contract, which is generally one to three years. It has over 2,800 customers across the world in every major industry including government agencies and over 200 of the Forbes Global 2000.

Its competitors include independent IT security vendors, such as Check Point, Fortinet, Palo Alto Networks, Inc. and Symantec Corporation, which offer a broad mix of network and endpoint security products; large networking vendors, such as Cisco and Juniper Networks, which offer security appliances and incorporate security capabilities in their networking products; and companies such as FireEye, Forcepoint (previously Websense), F5 Networks, and Pulse Secure with point solutions that compete with some of the features of Zscaler cloud platform, such as proxy, firewall, sandboxing and advanced threat protection, data loss prevention, encryption, load balancing, and VPN.

Zscaler’s Life as a Public Company

Zscalar went public on March 16 with a list price of $16 per share. By the first day of trading, it shot up by 106% to $33. It raised $192 million in the IPO.

Two months later, its COO and Head of Sales Bill Welch announced that he will be quitting to take on a more senior role at another tech company. The stock fell about 9% following the news. But the dip has been more than overcome by the recent surge.

The stock is trading at $37.79 with a market cap of $4.5 billion. Its 52-week low is $34.85 and 52-week high is $42.16. Analysts have increased their outlook on the company and the average price target rose to $32 from $29 a week ago as per Bloomberg.

Questions for the Board

Zscaler reportedly spurned a $2 billion buyout bid from Cisco before its IPO. But the cyber security space is highly competitive and innovative as well. How will Zscaler navigate in its new public avatar? How will it take advantage of the unprecedented opportunity in SaaS?

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