What happened

Shares of cybersecurity specialist Zscaler (ZS 0.84%) are falling today, down 10% as of 11 a.m. ET despite exceeding earnings estimates handily last night.

Heading into fiscal Q2 2023, analysts had forecast a $0.29-per-share profit on sales of $364.9 million -- and the company beat on both top and bottom lines. Sales came in well ahead of expectations at $387.6 million, while profits were a whopping $0.37 per share, or 27.5% more than predicted.  

So what

And yet, Wall Street was decidedly not happy with these numbers. At last report, no fewer than nine separate analysts had cut their price targets on Zscaler in response to last night's news, with most analysts guesstimating the stock to be worth somewhere between $135 and $155 a share. (For context, though, shares are currently selling for just over $120, so these estimates are generally continuing to maintain buy ratings for the stock.) 

But what is it about the Q2 results that Wall Street didn't like?  

After all, sales growth was tremendous -- up 52% year over year -- with deferred revenue increasing 46% and billings rising 34%. Presumably, analysts are worried that the latter two numbers don't quite match up with the former, and imply a slowdown in actual revenue growth going forward. This, combined with the fact that Zscaler's reported profit was actually on an adjusted basis, and that earnings as calculated according to generally accepted accounting principles (GAAP) showed a $0.40-per-share loss for the quarter, may explain why analysts weren't quite as impressed by Zscaler's "earnings beat" as you might expect.

Now what

But even if Zscaler's slowing down, it's still moving mighty fast. Shifting to guidance, management forecast about $397 million in fiscal third-quarter sales. This implies a growth rate of 38%, which is indeed slower than Q2's 52% rate of growth, but also better than the $387 million in quarterly revenue that analysts were looking for. Similarly, full-year revenue guidance for $1.56 billion in sales exceeds Wall Street's target for the year.

In short, analysts are right that growth seems to be decelerating at Zscaler. But even so, the company beat expectations in the second quarter, promised to beat them again in Q3 -- and indeed, to keep on beating them all year long.

That hardly sounds like bad news to me.