Company Overview and History
Zscaler, Inc. (ZS) has emerged as a leading provider of cloud-based cybersecurity solutions, pioneering the concept of Zero Trust architecture to secure modern enterprises. With its innovative cloud platform and growing suite of security offerings, Zscaler has positioned itself at the forefront of the industry's transformation towards a cloud-centric approach to network security.
Founded in 2007, Zscaler's origins trace back to the visionary insights of its CEO and Chairman, Jay Chaudhry. Recognizing the limitations of traditional perimeter-based security models in an increasingly cloud-driven and mobile-first business landscape, Chaudhry set out to develop a fundamentally new approach to network security. The result was the Zscaler Zero Trust Exchange, a cloud-native platform that delivers comprehensive security functionalities without the need for legacy hardware appliances.
Zscaler was incorporated in September 2007 during the early stages of cloud adoption and mobility. The company was founded with the vision that the internet would become the new corporate network as the cloud becomes the new data center. In its early years, Zscaler generated revenue primarily from sales of subscriptions to access its cloud platform, together with related support services. The company also generated an immaterial amount of revenue from professional and other services, which consisted primarily of fees associated with mapping, implementation, network design and training.
Technology and Product Offerings
Zscaler's platform operates as a globally distributed cloud service, enabling secure and fast access to authorized applications and services for users, regardless of their location or device. By adopting a Zero Trust philosophy, where nothing is inherently trusted, Zscaler's solutions eliminate the vulnerabilities associated with legacy virtual private networks (VPNs) and firewalls, significantly reducing the attack surface for its customers.
Over the years, Zscaler has steadily expanded its product portfolio, providing a comprehensive suite of security offerings. The key products and services offered by Zscaler include:
Zscaler Internet Access (ZIA): ZIA is Zscaler's flagship cloud security service that provides secure access to the internet and SaaS applications for users, whether they are on or off the corporate network. ZIA acts as a cloud-based secure web gateway, providing protection against cyber threats, as users access the internet and cloud applications. ZIA includes features such as web filtering, advanced threat protection, and data loss prevention.
Zscaler Private Access (ZPA): ZPA is Zscaler's cloud-based zero trust network access (ZTNA) service that enables secure access to internally-managed applications, without the need for a traditional VPN. ZPA connects users directly to the applications they need, without exposing the applications to the public internet, thus reducing the attack surface and risk of data breaches.
Zscaler B2B: Zscaler's B2B offering provides secure business-to-business collaboration, allowing organizations to securely connect and share information with partners, vendors, and suppliers.
The company's focus on innovation has led to the development of advanced technologies, such as its Agentic AI-powered analytics and automation capabilities, further enhancing the value proposition for its customers.
Financials
Zscaler's financial performance has been robust, with the company reporting consistent revenue growth in recent years. In the fiscal year 2024, the company generated revenue of $2.17 billion, representing a year-over-year increase of 34%. Its annual recurring revenue (ARR) has also grown steadily, reaching $2.41 billion as of July 31, 2024, a 27% year-over-year increase. The company's strong financial position is further bolstered by a healthy cash and short-term investments balance of $2.41 billion as of the same date.
For the six months ended January 31, 2025, Zscaler reported revenue of $1.28 billion, up 25% year-over-year. Subscription and related support services accounted for approximately 97% of total revenue. The company's gross margin for this period was 77%, reflecting the scalability and efficiency of its cloud-native architecture.
In the most recent quarter (Q2 2025), Zscaler reported revenue of $647.9 million, up 23% year-over-year. The company's net loss for the quarter was $7.72 million. Revenue growth was driven by an increase in users and additional subscriptions sold to existing customers, as well as the addition of new customers.
It's worth noting that Zscaler has incurred net losses in all annual periods since its inception. The company's net loss was $262 million in fiscal 2021, $202 million in fiscal 2023, and $58 million in fiscal 2024. These losses reflect the company's continued investments in research and development, sales and marketing, and general and administrative expenses to support its growth.
Zscaler's financial health is further demonstrated by its strong cash flow generation. In fiscal year 2024, the company reported annual operating cash flow of $779.85 million and annual free cash flow of $584.95 million. The company's liquidity position remains strong, with $2.88 billion in cash and investments as of January 31, 2025. Zscaler's debt-to-equity ratio stands at 0.77, while its current and quick ratios are both 1.20, indicating a solid short-term financial position.
Customer Base and Market Presence
One of the key drivers of Zscaler's success has been its ability to attract and retain large enterprise customers. As of July 31, 2024, the company had 8,650 customers, including approximately 35% of the Forbes Global 2000 companies. The company's focus on delivering comprehensive security solutions that address the evolving needs of its customers has been a critical factor in its growth.
Zscaler's global presence is another notable aspect of its business. The company operates a network of over 160 data centers across more than 85 countries, enabling it to provide low-latency and highly available services to its customers worldwide. This global footprint has been particularly important in supporting the company's international expansion, with approximately 50% of its revenue being generated outside of the United States in fiscal 2024 and 2023.
Risks and Challenges
Looking ahead, Zscaler faces a number of key risks and challenges. The highly competitive nature of the cybersecurity industry, with the presence of established players and the emergence of new competitors, may put pressure on the company's market share and pricing. Additionally, the company's reliance on its channel partner network, as well as potential supply chain disruptions or regulatory changes, could impact its operations and financial performance. Zscaler has also faced challenges in managing its rapid growth, including the need to hire and train a large number of new employees to support its expanding customer base and cloud platform.
Future Outlook
Despite these risks, Zscaler remains well-positioned to capitalize on the growing demand for cloud-based security solutions. The company's focus on innovation, its expanding product portfolio, and its strong customer relationships provide a solid foundation for continued growth. Furthermore, the increasing adoption of cloud computing, the proliferation of remote work, and the heightened awareness of cybersecurity threats among enterprises are all tailwinds that should benefit Zscaler's business in the years to come.
The cybersecurity market is expected to grow at a compound annual growth rate (CAGR) of 12.9% from 2025 to 2030, driven by increasing cyber threats and digital transformation across industries. This trend bodes well for Zscaler's future prospects.
For the third quarter of fiscal year 2025, Zscaler expects revenue between $665 million and $667 million, representing 20-21% year-over-year growth. The company anticipates a gross margin of approximately 80% and an operating profit between $140 million and $142 million. Earnings per share are expected to be in the range of $0.75 to $0.76.
For the full fiscal year 2025, Zscaler projects billings of $3.153 billion to $3.168 billion, representing 20-21% year-over-year growth. Revenue is expected to be between $2.64 billion and $2.654 billion, a 22% increase from the previous year. The company anticipates an operating profit of $562 million to $572 million and earnings per share between $3.04 and $3.09. Zscaler also expects its free cash flow margin to be approximately 24.5% to 25% for the full year.
Conclusion
In conclusion, Zscaler's pioneering approach to Zero Trust security, its robust financial performance, and its strategic positioning within the rapidly evolving cybersecurity landscape make it a compelling investment opportunity for those seeking exposure to the growing cloud security market. As the company continues to innovate and expand its offerings, it is poised to solidify its status as a market leader in the years ahead. With strong revenue growth, improving profitability metrics, and a clear vision for the future, Zscaler is well-equipped to navigate the challenges and opportunities in the dynamic cybersecurity industry.