Despite solid financial results, Zscaler shares plunge after announcing layoffs,
Shares in Zscaler Inc. plunged in late trading after the cybersecurity company announced layoffs alongside solid financial results in its most recent quarter.
For its fiscal second quarter that ended Jan. 31, Zscaler reported earning before costs such as stock compensation of 37 cents a share, up from 13 cents a share in the same quarter of last year. Revenue jumped 52%, to $387.6 million. Both the figures were strong beats as analysts had expected adjusted earnings of 27 cents per share on revenue of $364.7 million.
Deferred revenue as of the end of the quarter was $1.1 billion, up 46% year-over-year. Cash flow in the quarter was $89.5 million, or 23% of revenue, up from $48.3 million or 19% in the second quarter of fiscal 2022. Zscaler had $1.9 billion in cash and equivalents on hand, up from $174 million as of the end of July 2022.
Billings rose 34%, to $493.8 million, only slightly higher than an expected $491.5 million. The small size of the beat in billings has been cited in some reports as driving Zscaler’s after-hours share price drop.
Highlights in the quarter included new integrations with Zoom Video Communications Inc. The company’s Private Access achieved Federal Risk and Authorization Management Program Moderate authorization. And it introduced Zscaler Resilience, a cloud resilience service for Security Service Edge to ensure nonstop cloud security operations.
For its third quarter of fiscal 2023, Zscaler expects an adjusted profit of 39 cents a share on revenue of $396 million to $398 million. The analyst consensus was 31 cents and $387 million — another beat. It was the same with the company’s full-year outlook — adjusted earnings per share of $1.52 to $1.53 and revenue of $1.558 billion to $1.563 billion, beating an expected $1.24 a share and $1.53 billion.
“Even in this difficult macroeconomic environment, we continue to see customers consolidate multiple point products onto our integrated zero trust security platform for better security and lower cost,” Jay Chaudhry, chairman and chief executive officer of Zscaler, said in a statement. “We believe that strong customer interest in our platform, together with the growth in our annual recurring revenue base, supports the increase to our fiscal year guidance.”
Alongside the earnings, Zscaler also announced that it’s laying off 3% of its workforce, or about 177 employees. The company described the layoffs as a “targeted optimization initiative to address inefficiencies and certain job functions and projects.”
Despite the sold beats in the quarter and a revised outlook, the layoffs and the arguably not high enough increase in billings caused Zscaler stock to fall more than 10% after the bell.