The stock of Zscaler (ZS +0.26%) ran up 5.8% through 11:40 a.m. ET on Friday after the cybersecurity company reported better than expected sales and earnings in its fiscal 2024 third quarter last night.
Heading into the quarter, analysts forecast Zscaler would earn $0.65 per share, pro forma, on $535.9 million in revenue. In fact, the company reported a profit of $0.88 per share on sales of $553.2 million.
NASDAQ: ZS
Key Data Points
Third-quarter earnings
There was much to like in the report. Sales grew 32% year over year, and billings -- which foreshadow future revenue growth -- increased 30%. Free cash flow of $123.1 million was up 66.6% from one year ago.
Best of all, Zscaler reported a per-share profit of $0.12 under generally accepted accounting principles (GAAP). This number wasn't as big as the $0.88 adjusted number, but it was a reversal of last year's $0.32 per share GAAP loss.
According to data from S&P Global Market Intelligence, it was also the first quarter that Zscaler has ever reported positive GAAP profits. So you can see why investors are excited.
Does this make Zscaler a buy?
Turning to guidance, Zscaler forecast $566 million in fourth-quarter revenue, which would be about 24% growth from this current quarter -- slower than the third, but still quite respectable. Assuming the company hits this mark, full-year revenue will land at $2.14 billion, for 32% growth.
Now that the company has reached a scale sufficient to earn it real GAAP profits, I'm going to predict that it will remain GAAP profitable in the fourth quarter, opening up the prospect for the company to report its first full-year GAAP profit in 2025.
If that happens, it will surprise a lot of analysts, who don't expect to see full-year GAAP profits until 2027. And that surprise could mean Zscaler stock will go up even more in the coming year.
