Countdown to Zscaler (ZS) Q3 Earnings: A Look at Estimates Beyond Revenue and EPS

Ahead of Zscaler's (ZS) Q3 earnings release, analysts expect EPS to decline 14.8% year-over-year to $0.75, while revenue is projected to increase 20.4% to $666.11 million. Key metrics forecasts include 'Revenues- Direct Customers' at $76.85 million (+51.2% YoY), 'Revenues- Channel Partners' at $589.01 million (+17.3% YoY), 'Billings' reaching $792.21 million, and 'Remaining Performance Obligations' at $4.73 billion; the 'Dollar-Based Net Retention Rate' is anticipated to be 115.0%, slightly down from 116% the prior year.

Analysis

Zscaler's upcoming Q3 earnings report presents a mixed outlook, with analysts forecasting a 20.4% year-over-year revenue increase to $666.11 million, alongside an anticipated 14.8% decline in earnings per share to $0.75. The consensus EPS estimate has notably remained unrevised over the past 30 days, suggesting analysts have maintained their initial forecasts. Key operational metrics indicate continued top-line strength: 'Revenues- Direct Customers' are projected to surge by 51.2% to $76.85 million, and 'Revenues- Channel Partners' are expected to grow by 17.3% to $589.01 million. Furthermore, 'Billings' are forecasted at $792.21 million, a significant increase from $628.04 million in the prior-year quarter, and 'Remaining Performance Obligations' are estimated at $4.73 billion, up from $3.82 billion, both signaling robust future revenue visibility. However, a point of attention is the 'Dollar-Based Net Retention Rate,' which is anticipated to slightly moderate to 115.0% from 116.0% year-over-year. Despite the projected EPS contraction, Zscaler's stock has demonstrated strong recent performance, with returns of +17.9% over the past month, outperforming the Zacks S&P 500 composite's +8.2% change, though it currently holds a Zacks Rank #3 (Hold), indicating expectations of near-term market-performant behavior.

Key Decisions for Investors

• Investors should closely examine the Q3 results for confirmation of the projected revenue growth to $666.11 million and the strong billings increase to $792.21 million, while also scrutinizing the specific drivers for the anticipated 14.8% EPS decline and the slight dip in the Dollar-Based Net Retention Rate to 115.0%.
• Given the stock's recent +17.9% appreciation, evaluate whether the sustained robust growth in direct customer revenue (forecasted +51.2% YoY) and remaining performance obligations (expected $4.73 billion) can support further upside, especially in light of the Zacks Rank #3 (Hold) suggesting a neutral immediate outlook.
• Focus on management's forward guidance and commentary regarding profitability trends and strategies to maintain or improve customer expansion, as these will be crucial in determining the investment thesis beyond the current quarter's mixed signals.