Zscaler (ZS) Stock Trades Up, Here Is Why

What Happened?

Shares of cloud security platform Zscaler (NASDAQ:ZS) jumped 8.4% in the morning session after the company reported impressive first-quarter 2025 results, with billings, revenue, EPS, and adjusted operating income outperforming Wall Street's estimates. 

Management clarified there were no changes in the macro environment, which tempered growing concerns cited by peers that reported earlier. 

Notably, broader market trends around AI and cybersecurity, highlighted by a reported 3,000% increase in enterprise AI usage, suggested an expansion in the addressable market. This is expected to be augmented by recent acquisitions, including Red Canary and Avalor, for data security management. Red Canary reported $140M ARR (annual recurring revenue) earlier in the year, suggesting it will be a significant contributor to growth. 

Looking ahead, Zscaler reported optimistic full-year EPS guidance, which exceeded analysts' expectations. Overall, we think this was still a solid quarter with some key areas of upside.

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What The Market Is Telling Us

Zscaler’s shares are somewhat volatile and have had 11 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 9 months ago when the stock dropped 17.8% on the news that the company reported second-quarter earnings. Its billings guidance for next year was slightly below expectations, and furthermore, suggested ean acceleration in growth throughout the year. Management specifically detailed "year-over-year billings growth of approximately 13% in the first half, accelerating to 23% growth in the second half". This made the market quite uncomfortable. 

On the other hand, Zscaler beat analysts' billings, revenue, and operating income expectations this quarter. Zooming out, we think this was a solid quarter featuring some areas of strength, but the outlook seemed to be weighing on shares.

Zscaler is up 49.5% since the beginning of the year, and at $271.65 per share, has set a new 52-week high. Investors who bought $1,000 worth of Zscaler’s shares 5 years ago would now be looking at an investment worth $2,470.

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