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Zscaler Guidance News: ZS stock soars 21% on raised Q3 guidance, cybersecurity shares spike

  • Zscaler stock jumps 21% on guidance raise.
  • ZS stock is now down just 1% on the year.
  • CEO Jay Chaudhry raised revenue guidance by 5%.
  • Fiscal year guidance raised by $30 million.

Zscaler (ZS), known for its zero-trust cloud architecture and competitive cybersecurity offerings, saw its shares shoot up on Monday after the company surprised the market by raising their fiscal Q3 guidance. Zscaler does not even report the quarter's results until June 3 – more than three weeks away. ZS stock rose 21% to above $108 in Monday morning's regular session.

A number of other high-profile cybersecurity firms followed suit. Palo Alto Networks (PANW) stock rose 3%, while CrowdStrike (CRWD) jumped 6%. Fortinet (FTNT) also rose more than 6% last Friday on an earnings beat and guidance raise. Wall Street is starting to believe that cybersecurity is the safest section of the growth stock matrix. This price action commenced despite all three major indices dropping between 0.05% and 0.2% on Monday. The S&P 500 is doing better than the NASDAQ, which is to say that value is besting growth despite cybersecurity firms rallying.

Zscaler stock news: Q3 revenue guidance raised by 5%

Zscaler management hiked their fiscal third quarter revenue guidance from a midpoint of $397 million to a midpoint of $417 million or slightly more than 5%. They also raised their prediction of adjusted income from operations from a midpoint of $55.5 million to $62 million. CEO Jay Chaudhry now thinks billings for the quarter will rise almost 40% YoY to $480 million. 

Chaudhry now thinks fiscal 2023 revenue will arrive about $30 million higher than before in a range between $1.587 billion and $1.591 billion. 

“Our preliminary third quarter results exceeded the high end of our guidance range," Chaudhry said in a statement. "We had a strong finish to the quarter as the high ROI of adopting the Zscaler Zero Trust Exchange platform continues to resonate with customers and prospects in this challenging macro environment."

Zscaler stock was down more than 20% year to date before Monday's surge. At the time of writing, the shares have only lost 1% YTD. Even with the welcome spike in the share price though, the ZS stock price is down 43% over the past year. Due to high growth rates and praise from analysts, the stock took off to impressive heights during the pandemic. 

Back in early April, Needham analyst Alex Henderson was undeterred by the faltering share price. While Zscaler was trading around $105, Henderson said that Zscaler would double its operating margin and grow revenues at a 30%+ long-term rate. Henderson gave the stock 100% upside with his $210 price target.

Zscaler stock forecast

Well, I cannot say I see $210 over the next twelve months, but Zscaler stock sure looks like its primed for a further rally. A close above the March 31 swing high at $117.78 will confirm that the trend is in place. In the meantime, there could be some consolidation in Zscaler stock as short-term traders take their profits off the table.

However, that consolidation will allow the Relative Strength Index (RSI) to fall back into neutral territory, allowing for the next stage of the rally. After all, the RSI jumped from 31 to 61 just in Monday's session. It will quickly reach 70, overbought territory, and then require some sideways action to cool off.

After the consolidation, expect institutional investors to jump back in, pushing ZS stock back to $135 and $142.50 – both points of resistance earlier in the year.

ZS daily chart

Author

Clay Webster

Clay Webster

FXStreet

Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.

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