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Zscaler (NASDAQ:ZS) shares dropped sharply in premarket trading on Friday after the cyber security company posted better-than-expected earnings, but its guidance was not as strong as investors hoped for, Wedbush Securities said.
Analyst Dan Ives, who has an outperform rating on the stock, noted that “whisper expectations for the quarter were hoping for a stronger guide for ZS in FY22,” as the company said it expects to generate between $270 million and $272 million in the third quarter and $1.045 billion to $1.05 billion for the full-year.
“While every hyper growth name with premium valuations are in the penalty box in this risk-off white knuckle market, ZS is in the early days of leading the way on zero trust architecture and protecting cloud workloads via its ZPA/ZIA fortress solution making this a unique growth name to own for the coming years in our opinion,” Ives wrote in a note to clients.
Ives also lowered the price target on Zscaler to $330 from $400, citing a “lower multiple in this backdrop.”
Zscaler shares fell nearly 12% to $232.12 in premarket trading on Friday.
For the fiscal second quarter, Zscaler earned $0.13 per share on $255.56 million in revenue, up 62.8% year-over-year.
Earlier this month, Wedbush’s Ives said that Zscaler, along with Palo Alto Networks (NASDAQ:PANW), could report “rock solid” earnings results, as the shift to the cloud and federal spending continues to be tailwinds.