Hey everyone,
There will surely be a lot of headlines in the news today, many will probably negative because that’s what gets clicks but most of the headlines don’t matter.
We’re focused on one story today: Zscaler’s Third Quarter 2019 Earnings.
Zscaler (ZS) reported earnings on May 30th and they were pretty good. Today we’re going to focus on the prepared remarks to keep this under five minutes, tomorrow I’ll cover Q&A.
Our position
Number of shares: 439Average purchase price: $51.85Cost basis: $22,800Position size: 7.43% (medium)Current share price: $68.31Current value: $30,100Unrealized gain: $7,310 | +32%
Results
Revenue grows 61% year-over-year to $79.1 million
Calculated billings grow 55% year-over-year to $84.7 million
Deferred revenue grows 69%year-over-year to $211.5 million
GAAP net loss of $12.2 million compared to GAAP net loss of $8.8 million on a year-over-year basis
Non-GAAP net income of $7.4 million compared to non-GAAP net loss of $2.6 million on a year-over-year basis
Prepared Remarks
Customer Story from Jay Chaudhry -- President, Chief Executive Officer and Chairman of the Board
Let me highlight several new customer deals in the quarter. I will start with a deal that shows how large enterprises are buying the ZIA and ZPA platform. One of the world's largest pharmaceutical companies with its headquarters in Europe purchased our transformation bundle for 100,000 users aims the ZPA for over 17,000 users. Moving from a decentralized IT business units to a centralized IT model. This customer had a strategy to transform to the cloud, for their network and for their applications. To achieve this, the IT team identified two initiatives, one increase use of cloud including a move to Office365, Zoom and AWS.
And number two network and security transformation. They adopted a strategy to create secure local Internet breakouts for 200 offices around the globe. Our cloud security platform allowed them to realize the vision, a perimeter less enterprise with direct access to any service or application from anywhere, on any device without back hauling traffic through regional hubs. The results reduced business risk, faster user experience and significant cost savings. They will no longer need either a site to site VPN to AWS, or remote access VPN. ZPA also enables the customer to rapidly integrate mergers and manage divestitures, while increasing the level of security with a zero trust network access approach.
Comments on the competitive landscape
As organizations increasingly make the shift to the cloud, traditional firewall and VPN vendors are finally acknowledging that the legacy security appliances can secure the new digital enterprise and are attempting to build a security cloud using single tenant software designed for on-premise appliances just like you can't create a Netflix service by stacking thousands of DVD players in the cloud. You can't offer an inline high performance security cloud by spinning up a bunch of virtual machines in a public cloud. This is a defensive strategy of cloud imitators, which in our view serves the self-preservation of the vendor not the needs of the customers.
We believe, we have a significant competitive advantage as a result of the technology, architecture and maturity of cloud security platform including one, we were born in the cloud, for the cloud just like Salesforce and Workday. Two, we have a purpose built globally distributed multi-tenant cloud for fast user experience, unlike imitation cloud, Zscaler requires no back hauling from front doors to a central compute data center of a public cloud. Three, we perform SSL inspection at scale as a purpose built proxy for better security. Four, we deliver zero trust network access that provides application access without network access reducing business risk unlike firew