Zscaler's Loss Narrows, Outlook Beats Expectations: A Deep Dive into the Cloud Security Leader's Strong Quarter

As an investor, I'm always on the lookout for companies that are not only performing well but also have a compelling growth story. One such company that caught my attention recently is zscaler, Inc. (Nasdaq: ZS), the leader in cloud security. In its second quarter fiscal 2025, Zscaler reported a narrowing loss and an outlook that beat expectations, thanks to its strategic focus on AI and Zero Trust architecture. Let's dive into the details and explore what makes Zscaler an attractive investment opportunity.



Strong Revenue Growth and Expanding Deferred Revenue

Zscaler's revenue grew by 23% year-over-year to $647.9 million in the second quarter of fiscal 2025. This impressive growth can be attributed to the growing adoption of Zero Trust and AI, as well as the company's innovative solutions and services. Additionally, Zscaler's deferred revenue grew by 25% year-over-year to $1,878.5 million, indicating strong customer demand and a healthy pipeline.

Narrowing Loss and Robust Cash Flow

Zscaler's GAAP net loss narrowed to $7.7 million, compared to a loss of $28.5 million in the same quarter last year. The company's non-GAAP net income increased to $127.1 million, reflecting its strong operating performance. Zscaler's cash flow from operations was $179.4 million, or 27% of revenue, up from $142.1 million, or 27% of revenue, in the same quarter last year.

Innovative Solutions and Strategic Partnerships

Zscaler's success can be attributed to its commitment to innovation and strategic partnerships. The company introduced the industry's first Zero Trust Segmentation solution for branches and cloud environments, which improves customers' security posture and cuts firewall and infrastructure spend in half. Additionally, Zscaler started offering the Zero Trust Network Access (ZTNA) service natively integrated within RISE with SAP, enabling SAP customers to simplify and de-risk their cloud migration.



Zscaler also appointed Phil Tee as EVP of AI Innovations, further emphasizing its commitment to AI-driven solutions. The company achieved FedRAMP authorization for Zscaler Zero Trust Browser, assuring agencies of compliance with rigorous security standards and facilitating cloud adoption.

Outlook and Investment Opportunities

For the third quarter of fiscal 2025, Zscaler expects revenue of $665 million to $667 million, non-GAAP income from operations of $140 million to $142 million, and non-GAAP net income per share of approximately $0.75 to $0.76. These strong expectations reflect the company's confidence in its growth trajectory and the continued demand for its cloud security solutions.

As an investor, I'm impressed by Zscaler's strong performance and its strategic focus on AI and Zero Trust architecture. The company's innovative solutions, strategic partnerships, and robust financial results make it an attractive investment opportunity in the cloud security space. With a compelling growth story and a leadership position in the market, Zscaler is well-positioned to continue its impressive run and create value for shareholders.