Intrinsic Value Zscaler, Inc. (0XVU.L)

• Previous Close: £201.62
• Intrinsic Value: £344.54
• Upside potential: +71%

Stock Valuation Context

Business Model And Market Position

Zscaler, Inc. is a global leader in cloud security, offering a comprehensive suite of solutions designed to secure digital transformation for enterprises. The company's flagship products, Zscaler Internet Access and Zscaler Private Access, provide secure connectivity to external and internal applications, respectively, leveraging a zero-trust architecture. Its platform also includes Zscaler Digital Experience, which monitors user experience, and workload segmentation solutions like Zscaler Cloud Security Posture Management and Zscaler Cloud Workload Segmentation, aimed at reducing risks in cloud environments. Zscaler serves a diverse clientele across industries such as financial services, healthcare, and technology, positioning itself as a critical enabler of secure cloud adoption. The company's cloud-native approach differentiates it from traditional security vendors, offering scalability and efficiency. With the increasing shift to cloud-based infrastructures, Zscaler is well-positioned to capitalize on growing demand for robust cybersecurity solutions. Its focus on innovation and customer-centric solutions reinforces its competitive edge in the rapidly evolving security landscape.

Revenue Profitability And Efficiency

Zscaler reported revenue of $2.17 billion for FY 2024, reflecting strong growth in its cloud security offerings. Despite a net loss of $57.7 million, the company generated robust operating cash flow of $779.8 million, underscoring its ability to convert sales into cash efficiently. Capital expenditures were $144.6 million, indicating continued investment in platform scalability and innovation.

Earnings Power And Capital Efficiency

The company's diluted EPS stood at -$0.39, impacted by ongoing investments in growth and R&D. However, its high operating cash flow relative to revenue suggests effective capital management. Zscaler's cloud-based model allows for scalable revenue with relatively low incremental costs, enhancing long-term earnings potential as it achieves greater scale.

Balance Sheet And Financial Health

Zscaler maintains a solid financial position with $1.42 billion in cash and equivalents, providing liquidity for strategic initiatives. Total debt of $1.24 billion is manageable given the company's cash flow generation. The balance sheet supports continued growth investments while maintaining flexibility.

Growth Trends And Dividend Policy

Zscaler's revenue growth highlights its strong market position in cloud security. The company does not pay dividends, reinvesting cash flows into expansion and innovation. This aligns with its growth-focused strategy in a high-demand sector.

Valuation And Market Expectations

With a market cap of $39.5 billion, Zscaler trades at a premium, reflecting investor confidence in its growth trajectory and leadership in cloud security. The beta of 1.143 indicates moderate volatility relative to the market.

Strategic Advantages And Outlook

Zscaler's zero-trust architecture and cloud-native platform provide a competitive moat in the cybersecurity space. The company is well-positioned to benefit from increasing cloud adoption and regulatory demands for robust security. Continued innovation and market expansion are expected to drive long-term value creation.

Sources

Company filings, market data