Companies across a myriad of industries had to look on and watch Zscaler Inc (NASDAQ:ZS) with envy recently, as the cybersecurity firm enjoyed a monstrously successful IPO that saw its share prices virtually double overnight. Buoyed by the confidence of the company’s leading executives and the burgeoning industry it’s about to foray into, the market threw its full weight behind Zscaler when it debuted on the NASDAQ, causing the company’s shares to surge from its initial offering price of $16 to more than $31 each.
Zscaler is making heads turn in the market
When Zscaler (NASDAQ: ZS) announced it would be foraying into the public market for the first time, tech investors around the globe stood rapt with anticipation; after all, the cybersecurity industry that Zscaler is hoping to revolutionize has massive growth potential in both the near-term and long-term future, and the company seemed situated to enjoy a vibrant IPO. Given that Zscaler also enjoyed the distinct privilege of being the first-such cybersecurity firm to go public this year, it also stood to reason that it would vacuum up much of the tech market’s interest early on, leaving little money and attention for any would-be competitors.
Still, despite high ambitions, the market was blown away by Zscaler’s rapidly soaring share prices; the company’s share prices quickly doubled after it hit the market, and its early financial backers enjoyed a healthy return on their investments thanks to their loyalty to the up and coming cybersecurity firm. The company is an industry pioneer of modern cloud-based security solutions, but even given its impressive expertise in a rapidly burgeoning industry, many in the market have viewed its astonishing rise in value with as much skepticism as they have wonder; is it even possible, many analysts are beginning to ask, for Zscaler to maintain such an impressive growth trajectory?
Most tech investors will understand that, despite all of the hubbub surrounding the future of the cybersecurity industry, which is likely to grow more vital as billions of global consumers purchase additional digital gadgets and services, Zscaler’s recent surge in valuation isn’t necessary indicative of its future performance on the market. Much of the surge in valuation could very well be thanks to the savvy marketing the firm’s CEO has been credited for recently, particularly since he’s been so adept at leveraging the company’s expertise in cloud-based security solutions, which are a hot-ticket item on the tech market, to drum up positive press.
Still, just because Zscaler is unlikely to repeat its virtually instantaneous doubling in value, that doesn’t mean the company’s prospects are necessarily being overblown; after all, its revenue figures have been steadily rising in recent years, with Zscaler pulling in $125 million at the end of fiscal year 2017, a far cry ahead of the $53 million in revenue it reported back in 2015. Savvy investors will understand that rising revenue figures don’t mean anything if they’re matched by rising losses, however, and Zscaler’s prospectus gravely intones that the company will continue to operate at a loss for the foreseeable future.
Much needed capital could put an end to losses
So, what’s the bottom line on Zscaler’s future, now that it’s enjoyed one of the biggest IPOs of the year and has clearly sold itself to investors on the open market? Despite its track record of losses, investors should be heartened by Zscaler’s impressive wooing over of the market using domestic trusts, and understand that the sudden influx of a truly mammoth amount of capital from its market debut will be invaluable for the company when it comes to mitigating the losses it’s been suffering from for so long.
Tech investors will know that cybersecurity firms like Zscaler can’t just turn their operations around overnight; for the company to stop hemorrhaging money, it will need a clever strategy that both maximizes its consumer base while cutting back on its existing operational losses, which could be a result of fickle consumers. Having lost $14.6 million and $17.9 million for the six months ended January 31, 2017 and 2018, respectively, it stands to reason that the company’s deficit will continue to grow in the near-term, but that doesn’t mean that its financial fate is permanently sealed. If Zscaler’s impressive CEO can continue to drum up positive press that correlates into higher share values, the company can continue to dump money into organizational innovation in a hope to cut back on its currently dismal losses. Furthermore, the massive amount of interest likely surrounding Zscaler thanks to its sudden rise in valuation will put some much-needed wind in its sails when it comes to keeping investors around in the long-term, too. If revenue figures keep rising, and the company leverages the profits from its IPO wisely, expect Zscaler to remain a lasting, important name in the vibrant cybersecurity industry for years to come.