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Cloud security provider Zscaler (ZS) recently reported its quarterly performance that outpaced market expectations. Zscaler is seeing delays in the closing of big deals and expects its billings to slow down in the near future. But it continues to grow in the current economic conditions through acquisitions.

Zscaler’s Financials

Revenues for the second quarter grew 52% to $387.6 million, ahead of the market’s forecast of $363.8 million. Net income was $57.6 million, compared with a net income of $19.2 million reported a year ago. On an adjusted basis, EPS was $0.37 compared with the Street’s forecast of an EPS of $0.29.

Among key metrics, calculated billings for the quarter grew 34% to $493.8 million. Deferred revenues grew 46% to $1.111 billion.

For the third quarter, Zscaler expects revenue of $396-$398 million and an EPS of $0.39. The market was looking for revenues of $388.69 million and an EPS of $0.31.

Zscaler expects to end the current year with revenues of $1.558-$1.563 billion and an EPS of $1.52-$1.53. The Street had forecast revenues of $1.55 billion with an EPS of $1.24.

The market was disappointed with Zscaler’s billings. Zscaler estimates that there would be a 9% sequential decline in quarterly billings, which was higher the mid-single digit declines that were being recorded so far. The company attributed the decline to the slowdown in the closure of bigger deals.

Zscaler’s Acquisition

Recently, Zscaler announced its acquisition of Tel Aviv-based Canonic Security for an estimated $20.3 million. Founded in 2020, Canonic Security is a SaaS Application Security platform that profiles apps and user accounts, identifies suspicious or out-of-policy behavior, and automatically reduces the SaaS attack surface. The platform provides access intelligence and vulnerability insight, in addition to detecting SaaS-native threats and helping security teams respond quickly. As part of the acquisition, Canonic Security’s supply chain security capabilities will be integrated into Zscaler’s data protection services, allowing Zscaler to strengthen its CASB (Cloud Access Security Broker) and SSPM (SaaS Security Posture Management) offerings.

The integration will allow companies to consolidate point products, thus reducing costs and simplifying management. The new capability also builds upon the company’s recently announced industry-first, zero configuration data protection solution and Zscaler’s commitment to data protection despite its location. Prior to the acquisition, Canonic Security raised $6 million in a round of funding held in February 2022, led by First Round Capital, Operator Partners, SVA, and Elron Ventures.

Its stock is currently trading at $111.87 with a market capitalization of $16.24 billion. It had fallen to a 52-week low of $99.64 in January. It hit a 52-week high of $253.74 in March last year.

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