Zscaler (ZS) To Report Q2 Earnings: What's In The Cards?

Zscaler, Inc. price-eps-surprise | Zscaler, Inc. Quote

Factors to Watch

Zscaler’s expanded portfolio strengthens its competitive position and boosts user base. Additionally, growing adoption of the company’s cloud platform security solutions by enterprises is expected to have boosted revenues in second-quarter fiscal 2020.

Notably, the company became the first cloud security provider to be a certified partner in the Microsoft’s (NASDAQ:MSFT) Networking Partner Program (NPP) for Office 365 in the to-be reported quarter. Zscaler cloud’s capability to effectively handle web traffic and block any unnecessary interference on Office 365 is noteworthy.

The company’s unique offerings include four architectural advantages that firewalls cannot add-on. These include Edge cloud for policy enforcement, multi-tenancy, proxy for SSL or TLS inspection and zero trust network access.

Moreover, continued momentum in high customer win rates, coupled with a strong net dollar retention rate, is likely to have benefited the company’s revenues in the fiscal second quarter.

Notably, 100 of the Fortune 500 companies are Zscaler’s customers. The company ended first-quarter fiscal 2020 with more than 3,900 customers.

Additionally, strength in channel partnerships with large system integrators and global service providers, which contribute more than 50% of revenues, is expected to have been a major growth driver.

The company’s ability to provide cloud-based security solutions irrespective of the users’ “device or location” is a key catalyst. This is anticipated to have helped the company win customers in the to-be-reported quarter.

Notably, total global 2,000 customers increased to more than 400 as of Oct 31, up from more than 300 a year ago. Moreover, Zscaler Private Access (ZPA) had contributed 14% to the company’s new business in the previous quarter.

However, increased investments in cloud infrastructure and new product innovation are expected to have strained margins in the period under consideration.

What Our Model Says

According to the Zacks model, the combination of two key ingredients — a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — increases the odds of a positive earnings surprise. But that’s not the case here.

Zscaler has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat in their upcoming release.

Builders FirstSource, Inc. (NASDAQ:BLDR) has an Earnings ESP of +1.45% and a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here

Casa Systems, Inc. (NASDAQ:CASA) has an Earnings ESP of +83.34% and a Zacks Rank of 2.

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