Zscaler Q2 FY7/25 Earnings Review

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Gaining Traction, Hard Going (still)

By Hermit Warrior a.k.a. Richard Iacuelli

That, in a nutshell, describes Zscalers' ($ZS) Q2 print. Although management did a reasonable job in talking up the numbers, pointing to results that exceeded "guidance on growth and profitability" I think the reality was a little more nuanced.

Q2 revenue growth did come in above guidance (at 23% versus the 21% guide) but continued a slow downward slope from 26% in Q1, and 30% in the quarter before that, marking the 11th consecutive quarter of revenue growth deceleration, with Q3 guidance at 20% continuing the downward trend.

EBITDA and unlevered cashflow (UFCF) margins continued their gradual improvement, however still struggle to compare favourably to those of Fortinet ($FTNT) and Palo Alto Networks ($PANW), their more hardware-dependent competitors (PANW achieved 28% EBITDA margins in their latest quarter, while FTNT did even better at 37%).

Let's take a look at the headlines.

Other than revenue growth, everything is pointing in the right direction, with management guiding to further improvement in margins for the full year, and going so far as to raise their original full year guidance across all their key metrics.