Cybersecurity IPOs have been relatively rare so far in the year. While there have been many tech companies that have gone public over the past few months, the cornucopia of offerings ended up having the opposite effect as investors began to become overwhelmed with so many billion-dollar tech firms, most of which weren’t reporting profits at all.
In an ironic twist, the best performing IPOs weren’t even in the tech sector, companies like Beyond Meat and Grocery Outlet have been stars in the IPO market. However, cybersecurity companies have done reasonably well and differ from the other public offerings that have taken place so far.
Investors, however, were quite surprised to hear that one hyped up cybersecurity company, Zscaler, plunged drastically today after it received a surprise downgrade.
While tech stocks on Monday rallied for the most part, Zscaler plunged by a double-digit margin over the course of the day after OTR Global downgraded the stock to a negative rating. Specifically, OTR Global raised questions over the increasing competition in the market as well as the company’s sales figures. While Zscaler is the largest provider of cloud-based web security gateways on the market, with most of its revenue coming from their cloud-based replacement for on-premise web security gateways.
It’s a surprising development for a stock that’s had a stellar track record up until now. Ever since the company went public back in 2018, shares have soared with the stock rising over 85 percent since then.
This rally has pushed Zscaler’s valuation to new heights with a market cap of $9.4 billion, over 35 times trailing-12-month sales. Although the company isn’t profitable – something that’s common among most tech companies these days – Zscaler has had a positive free cash flow over the past year, so that’s at least some compensation for shareholders.
Time will tell whether this downgrade was justified. Zscaler is scheduled to report its fiscal Q4 results on September 10th, so everyone will be keeping a close eye when the report comes out. The company exports net revenue between $81 million and $83 million alongside a small net profit. While that would imply a year-over-year growth rate of 45.9 percent, should the stock not meet expectations, shares could plunge significantly no matter how strong Zscaler’s growth has been.
Shares of Zscaler fell by 11.3 percent over the course of the day in response to the downgrade. Over the past six months, the company has been doing well for itself, rising from around $50 per share in March to as high as almost $90 before stumbling back down to $72.
Zscaler Company Profile
Zscaler is a security-as-a-service firm that offers its customers cloud-delivered solutions for protecting user devices and data. The firm leverages its position in over 100 colocation data centers to deliver traditionally appliance-based security functionality, such as firewalls and sandboxes, as a completely cloud-native platform.
The firm focuses on large enterprise customers and offers two primary product suites: Zscaler Internet Access, which securely connects users to externally managed application and websites (such as Salesforce and Google), and Zscaler Private Access, which securely connects users to internally managed applications. Both product suites encompass a broad gamut of capabilities situated across the traditional security stack. – Warrior Trading News