Premarket trade on Friday saw a more than 6% decline in Zscaler (ZS.O) shares as the cybersecurity company let investors down with a slower rate of revenue growth and a looser grip on expenses.
The financial community had great expectations for the company’s growth, particularly after its shares more than doubled in 2023 and kept rising during the first two months of this year.
According to a note from Jefferies analysts, the company “conducted significant hiring,” indicating confidence in expansion.
Zscaler’s sales increased by 35% in the second quarter, which was the slowest rate of growth in at least four quarters, as the company’s revenue increased by an average of 45% in those periods.
“We believe the sharp … drop (in share value) adds credence to our belief that some of the expectations baked into Zscaler’s valuation were overly optimistic,” analysts at Morningstar stated.
Zscaler has been refining its sales methodology with an emphasis on vertical selling, which targets clients within a certain industry, and becoming more account-centric.
Per the Jefferies research, this decision may be producing short-term problems for the company.
The business’s second-quarter expenses increased by more than 24% to $453.3 million, in line with an increase in spending during the quarter that ended on October 31.
