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Here's our initial take on Zscaler's (NASDAQ: ZS) fiscal 2025 second-quarter financial report.
Key Metrics
| Metric | Q2 2024 | Q2 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $525.0 million | $647.9 million | +23% | Beat |
| Adjusted earnings per share | $0.63 | $0.78 | +24% | Beat |
| Free cash flow | $100.8 million | $143.4 million | +42% | n/a |
| Calculated billings | $627.6 million | $742.7 million | +18% | n/a |
Zero Trust and AI
Zscaler beat expectations in the second quarter of fiscal 2025, reporting 23% revenue growth. The company's Zero Trust platform continued to win over customers that were previously using legacy appliance-based cybersecurity solutions, which aren't well suited for cloud-based infrastructures and remote workforces. One notable customer win during the quarter was Nokia (NYSE: NOK), which is dumping its firewall-based system for Zscaler's Zero Trust platform.
Zscaler CEO Jay Chaudhry noted in the earnings release that AI is creating new avenues of growth. "By combining AI with Zero Trust, we are delivering several key innovations to secure our customers' use of AI applications," Chaudhry said. As companies increasingly roll out AI applications and agents to their workforce, ensuring secure access is critical. An AI application trained on proprietary data needs to be locked down, and Zscaler's Zero Trust platform is proving to be up to the task.
On top of beating expectations for revenue, Zscaler also beat analyst estimates for adjusted earnings per share with 24% growth. Free cash flow grew even faster at 42%, surging to $143.4 million.
Immediate Market Reaction
Shares of Zscaler were up about 5% in early after-hours trading soon after the second-quarter report was released. In addition to beating expectations across the board, the company slightly raised its guidance for fiscal 2025. The stock has been volatile over the past year, and it went into this earnings report down about 47% from its all-time high reached in late 2021. A solid earnings report could help Zscaler's stock claw back some of those losses.
What to Watch
Zscaler expects to produce third-quarter revenue between $665 million and $667 million, which represents year-over-year growth of 20% at the midpoint. For the full year, the company sees revenue coming in between $2.64 billion and $2.654 billion, a bit higher than its previous guidance. If Zscaler hits the midpoint of that range, revenue will expand by about 22% in fiscal 2025.
The new full-year guidance is certainly good news for investors. The company is talking up securing AI applications and workloads as a significant opportunity, and that could have contributed to the improved guidance. The company will likely discuss its AI opportunity in more detail during the earnings call.