Zscaler shares fall as revenue growth pace slows

Zscaler shares fall as revenue growth pace slows


Zscaler shares fall as revenue growth pace slows

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(Reuters) - Zscaler (ZS.O) shares fell more than 6% in premarket trading on Friday after the cybersecurity firm disappointed investors with a slower pace of revenue growth and its failure to keep a tight lid on costs.

Expectations of robust performance from the company were running high in the investing community, especially after its shares more than doubled in 2023 and continued to surge for the first two months of the year.

The company "conducted significant hiring," signaling confidence in growth, Jefferies analysts wrote in a note.

Revenue rose 35% in the second quarter - Zscaler's slowest pace of growth in at least four consecutive quarters, during which its revenue jumped by an average of 45%.

"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," Morningstar analysts said.

Zscaler has been revamping its sales model to be more account-centric and focused on vertical selling, which targets customers within a particular industry.

This switch could be causing near-term disruptions for the company, according to the Jefferies note.

The company's second-quarter expenses surged more than 24% to $453.3 million, which was consistent with a rise in spending recorded in the quarter ended Oct. 31.