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Why Zscaler Stock Surged Today

By Joe Tenebruso – Updated May 29, 2020 at 5:26PM

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Tens of millions more Americans are working from home amid the COVID-19 pandemic, and that's fueling torrid growth for the cloud security leader.

What happened 

Shares of Zscaler (ZS 1.54%) soared on Friday after the cloud-based cybersecurity company delivered blockbuster results for its fiscal third quarter, which ended April 30. By the close of trading, Zscaler's stock was up by 29.4%. 

So what 

Zscaler's revenue jumped 40% year over year to $110.5 million, while billings -- a key metric that reflects new subscription sales -- leaped 55%, to $131.3 million. Those gains were driven by strong sales of Zscaler Private Access (ZPA), a cloud-based service that helps businesses and other organizations provide users with access to their internal applications without the need to grant those users network access. 

"The mitigation activities taken by every enterprise in response to the COVID-19 pandemic created an immediate need for strong security and access to the internet and business applications, all while working from anywhere," Chairman and CEO Jay Chaudhry said in a press release.

A person in a business suit is pointing to a digital image of a lock.

Zscaler's cloud security offerings are in high demand. Image source: Getty Images.

Better still, Zscaler's cash production is improving as it scales its operations. Operating cash flow climbed 54% to $20.8 million, while free cash flow nearly doubled to $9.1 million.

Now what

After the coronavirus pandemic forced many businesses to close their offices and shift to the work-from-home model, those companies had little choice but to accelerate their investments in tools that would allow their employees to securely access vital applications remotely. Zscaler's ZPA is widely regarded as having best-in-class technology for these purposes -- and orders have flooded into the company in recent months.

"We saw exceptional strength in our ZPA service with over 10 times growth in usage during the quarter," Chaudhry said during a conference call with analysts. "Many new and existing customers deployed hundreds of thousands of new ZPA users."

While many people will soon resume working in their offices and places of business as states relax their stay-at-home guidelines, the migration of business processes to the cloud should continue to fuel Zscaler's growth.

"The digital transformation that is driving our business is further accelerating, and we believe the Zscaler cloud security platform is best positioned to help our customers thrive no matter where their teams are working," Chaudhry said.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zscaler. The Motley Fool has a disclosure policy.

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