While established tech companies like Alphabet (NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN) continue to gobble up media headlines, and other tech IPOs like Dropbox have seized the market’s attention, savvy tech investors everywhere are keeping a close eye on Zscaler’s forthcoming IPO, which some expect could be one of the biggest of the year. The security software company is heading full-throttle towards a mammoth valuation that could price it at more than $1.5 billion, and analysts from Wall Street to Beijing are scrambling to find out all they can about the company before it debuts on the market.
What should you expect from Zscaler’s IPO, and how might it impact the broader tech market for the rest of 2018? A quick glance at the security software company’s record shows that it has serious potential, but that it needs to cut back on its losses before the market starts taking it seriously.
The cybersecurity market is heating up
It goes without saying that the burgeoning cybersecurity industry is one of today’s biggest allures in the market, but companies like Zscaler Inc (NASDAQ:ZS) are continuing to wow investors with how vital they could prove to be in the future. As billions of global consumers flock to the internet and purchase more of their favorite digital gadgets en masse, cybersecurity software firms like Zscaler are the only thing standing between them and the hackers trying to gain access to their lucrative data, meaning the company and its early backers should expect to enjoy a thriving industry for the immediate future.
Despite the rosy future surrounding cybersecurity software, however, Zscaler won’t have an easy time of it in the market at first; its industry is getting increasingly crowded as tech experts realize the profits there are to be made defending consumer’s data, and the company has been hemorrhaging money for the last few years in such a way that will turn off many investors. The last three fiscal years have seen Zscaler posting greater and greater losses, and despite the company’s clever spin that it’s been breaking growth records, it’s yet to turn a serious profit.
Not everything is doom and gloom for the cybersecurity company, of course; the fact that its revenue figures have been steadily rising just behind its losses should convince some analysts that it’s still capable of turning things around in the future, and when Zscaler hits the market on Friday it could cement a market valuation of some $1.64 billion, a hefty sum that will impress many investors looking to throw their weight behind the latest tech unicorn. Coupling its impressive market valuation with the money it gains from its IPO, which could reap the software firm more than $160 million, it stands to reason that Zscaler will be able to expand its services and invest more in its IT infrastructure to help cut down on its current losses.
Zscaler could end up selling some 12 million shares at a price range of $13 to $15, provided investors still see a bright future for the cybersecurity company, and it will doubtlessly put much of the money it gains towards improvements to help it in its fight against its biggest competitors like Cisco and Symantec (NASDAQ:SYMC) offering a hosted PBX serviceto businesses. The company initially field to sell 10 million shares at a price range of $10 to $12, so the upping in the number of shares offered and the increase in price per share could reflect the confidence its executives have that things are about to turn around for the company.
Tech unicorns continue to enthrall the market
Despite the hubbub that always surrounds so-called tech unicorns, labeled that because of their $1 billion plus valuations, investors should remain cautious when it comes to backing Zscaler until it’s done enough to assure them that its current series of losses are coming to an end. Despite increasing revenue figures, which saw the company leap from $53 million in 2015 to $125 million by the end of fiscal 2017, its increasing net losses aren’t likely to abate anytime soon, according to the prospectus it filed with the SEC.
This should be a warning to investors who are looking for immediate returns on their investments, and the intense competition the firm will be facing from the likes of Cisco will likely only be growing worse in the future, too. As the market tilts more and more towards a digitally-dominated future, other companies are sure to step in on Zscaler’s turf, meaning the company will have to struggle for every last dollar if it’s to one day make it out of the red.
Tech investors shouldn’t totally shun Zscaler, given the company’s potential to make it big in a rapidly growing industry, but they need to keep a close eye on its accruing losses if they want to keep their cash in the long run. Despite the bright future its industry possesses, Zscaler is sailing into some fierce headwinds, and will need a steady hand at the wheel to steer the company towards success.