Shares of Zscaler Inc. fell in extended session on Thursday after the cybersecurity company joined a chorus of cloud software companies concerned about recession-averse customers and praising upsells to loyal customers, while raising their perspective and announcing layoffs.
ZS Scaler,
The shares fell 12% after hours, following a 4.4% gain in the regular session to close at $134.13, after the company experienced a slowdown in billing in the current quarter.
“For the third quarter, we assume revenue will decline approximately 9% sequentially compared to the mid-single-digit percentage declines we’ve seen in recent years,” Remo Canessa, Zscaler’s chief financial officer, told analysts on the call. .
For the second quarter, Zscaler reported revenue, or revenue plus deferred revenue acquired during the quarter, of $493.8 million in the second quarter, while Wall Street expected revenue of $491 million. A 9% decline would be about $449.4 million, while the Street expects $448.6 million.
“In January, we saw increased scrutiny of budgets compared to December, resulting in additional delays on large deals,” Jay Chaudhry, Zscaler’s president and CEO, told analysts. “These deals have not gone away and customers take longer to make decisions and require additional approvals.”
As has been the case with many cloud software providers this earnings season, companies are taking more time to analyze the duration of agreements or subscriptions, and cloud software companies are streamlining their own operations. .
The company said in a filing with the Securities and Exchange Commission that it was cutting its global workforce by 3%, or about 150 positions, by the end of fiscal year 2023, which ends in July, and taking an $8 charge. million to $10 million. Zscaler last reported a headcount of 4,975.
Meanwhile, the company expects full-year earnings of $1.52 to $1.53 on revenue of approximately $1.56 billion and revenue of $1.94 billion to $1.95 billion.
Zscaler had last forecast adjusted earnings of $1.23 to $1.25 a share on revenue of about $1.53 billion and revenue of $1.93 billion to $1.94 billion for the year, and analysts were estimating $1.24 a share on revenue. of $1.53 billion and billing of $1.93 billion for the year.
Zscaler forecast adjusted earnings of around 39 cents a share on revenue of $396 million to $398 million for the fiscal third quarter. Analysts polled by FactSet had estimated 31 cents a share on revenue of $387.3 million and revenue of $448.6 million for the quarter.
The company reported a fiscal second-quarter loss of $57.5 million, or 40 cents per share, compared with a loss of $100.4 million, or 71 cents per share, in the same period a year earlier. Adjusted net income, which excludes stock-based compensation and other items, was 37 cents per share, compared with 13 cents per share in the prior year period.
Revenue increased to $387.6 million from $255.6 million in the year-ago quarter, the company said.
Analysts polled by FactSet had forecast earnings of 29 cents a share on revenue of $340.7 million, based on Zscaler’s forecast of 29 cents to 30 cents a share on revenue of $365.5 million to $366 million.
Read: These ‘Three Horsemen’ of Cybersecurity Are Very Likely to Withstand Demand Slowdown, Says Morgan Stanley
Cloud software providers are still trying to land deals in a cost-conscious environment as companies cut back on spending from a looming recession. By adding new services, or modules, to the platform, customers receive more information and are encouraged to add more modules or functionality to their custom platform.
That’s the model behind identity management software company Okta Inc. OKTA,
which on Wednesday night said most of its business was upselling and cross-selling to established customers, and Wall Street said the company was “partially out of the woods.”
Much of Zscaler’s report mirrored Okta’s: client reluctance to close deals in the uncertain economic environment, longer times to close, and 90%+ client retention rates allowing platforms to sell more to existing customers.
In January, Morgan Stanley downgraded Zscaler and other cybersecurity names in the belief that the “peak” cybersecurity has passed and investors need to be more selective in the sector.
Read: Cloud software is a ‘knife-in-the-mud fight,’ and Wall Street is bitter about the industry it was winning
Meanwhile, HR cloud software company Workday Inc. WDAY,
It said earlier in the week that it was still on track to hit growth targets, despite a setback, and offered conservative guidance.
That dynamic was also evident in Salesforce Inc.’s CRM,
earnings report, another cloud software company this week that promised profitability and cut jobs, giving the stock its biggest lift since 2020.
As of Thursday’s close, Zscaler shares were down 47% over the past 12 months, compared with a 9% loss for the S&P 500 SPX Index.
a 17% drop by the tech-heavy Nasdaq Composite COMP Index,
and a 20% drop in ETFMG Prime Cyber Security ETF HACK,