Why Zscaler Stock Crashed Over 17% Today

Zscaler (ZS -18.06%) Shares tumbled in morning trading on Wednesday, down 17.8% at 12:04 a.m. ET, even as the company crushed analysts’ estimates for its fiscal fourth quarter when it reported after the closing bell on Tuesday.

Analysts had expected the cybersecurity company to report adjusted earnings of $0.69 per share on sales of $567.9 million for the quarter. Instead, its earnings were $0.88 per share and sales reached $592.9 million. However, it seems that investors were less interested in Zscaler’s recent past and more worried about what might happen next year.

Zscaler Q4 Earnings

In some ways, Q4 was pretty great for Zscaler. Sales rose 30%, with billings (up 27%) and deferred revenue (32%) rising in tandem. In other ways, it was less than great.

While the company managed impressive non-GAAP earnings and cut GAAP (generally accepted accounting principles) losses in half from the year-ago period, it still reported a GAAP loss of $0.10 per share. For the full fiscal year, its GAAP loss was $0.39 per share, down from $1.40 per share in fiscal 2023.

CEO Jay Chaudhry hailed the results as “exceeding the high end of our guidance across all metrics.” And Zscaler has made good progress in achieving true GAAP profitability.

Does this make Zscaler a buy?

But can Zscaler maintain its growth momentum and achieve real profitability? This is where Zscaler’s guidance news might worry investors a bit.

Turning to guidance, Zscaler said it expects to report non-GAAP earnings of approximately $0.62 in Q1 fiscal 2025 and $2.84 in fiscal 2025 on sales growth of 20%. The problem is that the consensus forecast among Wall Street analysts covering the company was for non-GAAP earnings of $0.73 and $3.33, respectively. So basically as soon as Zscaler reported an “earnings beat” in Q4, it told investors it would miss earnings in the new quarter and the new fiscal year. Given that analysts had already warned that Zscaler wouldn’t reach GAAP profitability before 2027, its disappointing non-GAAP guidance implies that GAAP profitability could be even further away.

With Zscaler’s sales growth slowing and earnings guidance weaker than expected, Wednesday’s selloff seems justified to me.