Business
Hey everyone, There will surely be a lot of headlines in the news today, many will probably negative because that’s what gets clicks but most of the headlines don’t matter.We’re focused on one story today: Zscaler’s Third Quarter 2019 Earnings. Zscaler (ZS) reported earnings on May 30th and they were pretty good. Today we’re going to focus on the prepared remarks to keep this under five minutes, tomorrow I’ll cover Q&A.Our positionNumber of shares: 439Average purchase price: $51.85Cost basis: $22,800Position size: 7.43% (medium)Current share price: $68.31Current value: $30,100Unrealized gain: $7,310 | +32%ResultsRevenue grows 61% year-over-year to $79.1 million Calculated billings grow 55% year-over-year to $84.7 million Deferred revenue grows 69%year-over-year to $211.5 million GAAP net loss of $12.2 million compared to GAAP net loss of $8.8 million on a year-over-year basis Non-GAAP net income of $7.4 million compared to non-GAAP net loss of $2.6 million on a year-over-year basisPrepared RemarksCustomer Story from Jay Chaudhry -- President, Chief Executive Officer and Chairman of the BoardLet me highlight several new customer deals in the quarter. I will start with a deal that shows how large enterprises are buying the ZIA and ZPA platform. One of the world's largest pharmaceutical companies with its headquarters in Europe purchased our transformation bundle for 100,000 users aims the ZPA for over 17,000 users. Moving from a decentralized IT business units to a centralized IT model. This customer had a strategy to transform to the cloud, for their network and for their applications. To achieve this, the IT team identified two initiatives, one increase use of cloud including a move to Office365, Zoom and AWS.And number two network and security transformation. They adopted a strategy to create secure local Internet breakouts for 200 offices around the globe. Our cloud security platform allowed them to realize the vision, a perimeter less enterprise with direct access to any service or application from anywhere, on any device without back hauling traffic through regional hubs. The results reduced business risk, faster user experience and significant cost savings. They will no longer need either a site to site VPN to AWS, or remote access VPN. ZPA also enables the customer to rapidly integrate mergers and manage divestitures, while increasing the level of security with a zero trust network access approach.Comments on the competitive landscape As organizations increasingly make the shift to the cloud, traditional firewall and VPN vendors are finally acknowledging that the legacy security appliances can secure the new digital enterprise and are attempting to build a security cloud using single tenant software designed for on-premise appliances just like you can't create a Netflix service by stacking thousands of DVD players in the cloud. You can't offer an inline high performance security cloud by spinning up a bunch of virtual machines in a public cloud. This is a defensive strategy of cloud imitators, which in our view serves the self-preservation of the vendor not the needs of the customers.We believe, we have a significant competitive advantage as a result of the technology, architecture and maturity of cloud security platform including one, we were born in the cloud, for the cloud just like Salesforce and Workday. Two, we have a purpose built globally distributed multi-tenant cloud for fast user experience, unlike imitation cloud, Zscaler requires no back hauling from front doors to a central compute data center of a public cloud. Three, we perform SSL inspection at scale as a purpose built proxy for better security. Four, we deliver zero trust network access that provides application access without network access reducing business risk unlike firewalls and VPN's.And lastly we have over 10 years of experience running a mission critical inline cloud for Global 2000 customers, processing 65 billion transactions a day. As someone said, it is really no compression algorithm for experience. We continue to innovate and invest in maintaining our significant technology lead. Our latest fourth generation large data centers provide multiple 100 gigabits per second links. We continue our strategy of targeted tuck-in acquisitions. Our previously announced trust path acquisition is already well integrated into the Zscaler platform and their machine learning and AI technology is helping us deliver better threat detection.LinksThank you so much for your time and attention. I love providing this information but as investors, the best way to learn is to dig into these reports on your own and come to your own conclusions. Here are all the links below. I’ll generally review the release, then listen to the earnings call (this is important because we can gather so much from tone and communication styles), then read the transcript and take notes.Zscaler Third Quarter 2019 Earnings ReportZscaler Third Quarter 2019 Earnings Call (replay)Zscaler Third Quarter 2019 Earnings Call Transcript (Motley Fool)Thank youThat’s all for today. As always, thank you for your time and attention. I would love your feedback so I can continually improve this newsletter.Also, if you want to support the newsletter, please like (hit the heart above it helps people find us!), share with friends, or change to a $5/month or $50/year “subscription” which includes the exact same content you are currently reading for free. Get full access to Founder Stock Investing at austin.substack.com/subscribe