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Zscaler Goes on an Acquisition Spree

Posted on Friday, Jun 12th 2020

The global lockdown conditions have resulted in organizations stepping up their spending on cyber security solutions. Enterprise cloud security company Zscaler (NASDAQ: ZS) is benefiting from this trend. It recently reported its third quarter results that sent the stock soaring to record high levels. The company is also using the current economic conditions to pick up acquisitions.

Zscaler’s Financials

Revenues for the third quarter grew 40% to $110.5 million, ahead of the market’s forecast of $106.2 million. GAAP net loss was $19.3 million versus net loss of $12.2 million a year ago. On an adjusted basis, EPS was $0.07 compared with the Street’s forecast of an EPS of $0.02.

Among key metrics, calculated billings for the quarter grew 55% to $131.3 million. Deferred revenues grew 42% to $300.8 million.

For the fourth quarter, Zscaler expects revenue of $117-$119 million, with an EPS of $0.02-$0.03. The market was looking for revenues of $114.4 million with an EPS of $0.02. Zscaler expects to end the fiscal year with revenues of $422-$424 million and an EPS of $0.20-$0.21. The Street had forecast revenues of $414.79 million with an EPS of $0.15.

Zscaler’s Acquisitions

Zscaler appears to be using the current pandemic conditions to expand its product offerings and making acquisitions. In April this year, it announced the acquisition of Cloudneeti Corporation, a cloud security posture management (CSPM) company which prevents and remediates misconfigurations of applications in SaaS, IaaS, and PaaS. The acquisition will help provide data protection to public cloud workloads and enhance Zscaler’s data protection offerings by providing its customers with the ability to apply protection policies across locations, users, and application types, provide a unified compliance assurance capability, and get access to automated remediations to mitigate threat.

Redmond, Washington-based Cloudneeti was founded in 2017 by Gururaj Pandurangi to deliver self-serve solutions for workload assurance, security and compliance validations against industry standards. Prior to the acquisition, Cloudneeti was privately held and had raised a pre-seed round of $300,000 in January this year. Terms of the deal were not disclosed.

More recently, Zscaler announced the acquisition of Edgewise Networks that helps secure application-to-application communications for public clouds and data centers. It improves the security of communication by verifying the identity of application software, services, and processes to deliver a zero trust environment that reduces the attack surface and lowers the risk of application compromise and data breaches. The acquisition will help broaden the Zscaler cloud-native platform and secure application-to-application communication to help build more secure public clouds and data centers.

Boston-based Edgewise Networks was founded in 2016 by Harry Sverdlove and Peter Smith. Prior to the acquisition, Edgewise had raised $18 million in funding from investors including Pillar Ventures, .406 Ventures and Accomplice. Terms of the acquisition were not disclosed.

Besides acquisitions, Zscaler is also expanding its product offerings. Last month, it announced that its Zscaler Private Access (ZPA) had achieved the Federal Risk and Authorization Management Program (FedRAMP) High Authority status to Operate from the FedRAMP Joint Authorization Board (JAB). The status certifies that ZPA meets the requirements of civilian, DOD, and Intelligence organizations. ZPA became the first and only zero trust remote access service to be FedRAMP High Baseline JAB authorized. The certification will help it build inroads into the government sector.

Zscaler had listied in March 2018 at $16 per share at a valuation of $1.9 billion. It is currently trading at $102.7 with a market capitalization of $13.4 billion. It had fallen to a 52-week low of $35 in March this year but has recovered since and climbed to a 52-week high of $112.73 earlier this month.

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