Cybersecurity Firm Zscaler's Shares Fall on Dour Annual Forecasts

Zscaler shares tumbled about 18% in premarket trading on Wednesday following the cybersecurity firm’s downbeat annual forecast, as macroeconomic challenges slowed spending by its customers.

Zscaler’s management said that the challenges impacted the billings from three-year contracts, resulting in a lower growth expectation for the first half of fiscal 2025.

The bleak forecasts prompted at least 10 brokerages to cut their price targets on the stock, with Needham making the biggest revision by cutting it to $235 from $290.

Enterprises are slashing down on security spending as high interest rates and a sluggish economy weigh on the overall budgets.

Zscaler’s peers Palo Alto Networks and SentinelOne, however, boosted expectations with strong annual revenue forecasts as CrowdStrike’s customers reevaluated their options in the aftermath of a global IT outage.

Zscaler was on track to shed more than $5 billion from its market valuation of $29.2 billion, if premarket losses hold.

The company expects full-year revenue in the range of $2.60 billion to $2.62 billion, while analysts’ estimated $2.63 billion, according to LSEG data.

“Contracted billings (scheduled billings from prior-year contracts), a significant and growing portion of total billings, are projected to grow 7% in 1H2025, reflecting the impact of past macro challenges that have led to a historically lower growth rate in the first half,” Rosenblatt Securities analyst Catharine Trebnick said in a note.