Trade Alert – Bought ZScaler (ZS) $200.25
Started buying on declines as planned after the big drop following earnings on 3/1. I bought 20% and will continue to accumulate.
Management had guided to higher Capex for platform buildout, which caused the drop among other reasons, such as worries about buyer fatigue and high multiples. With the price dropping about 20% from its high of $250, this is an opportunity.
Product development is key as their TAM will grow with more AI apps and data being used for cybersecurity. The recent SEC mandate obliging companies to report material cybersecurity incidents will be a further spur to demand for protection software. Zscaler has more than enough product differentiation not to be particularly exposed to price wars. The risk is seasonality and lengthier sales cycles because of exposure to larger clients.
The main objective would be to look at it beyond quarterly volatility – as a larger company, some of its revenue metrics will not be good indicators on a quarterly basis but should be looked at from a long term perspective.
It’s still not cheap, about 12-13x sales @ 28% growth and I would prefer it 10% lower and will continue to accumulate.