Executive Summary
Zscaler’s QQ2 2024 results reflect a continued growth trajectory underpinned by broad platform adoption and a strategic shift toward account-centric selling. Revenue rose 35% YoY to $525 million, while total billings advanced 27% YoY to $628 million, aided by an expanding base of large customers and a strong federal pipeline. The company also reported an upsize in RPO to $3.613 billion (up 29% YoY) and a 12-month trailing dollar-based net retention rate of 117%, signaling durable revenue visibility and healthy cross-sell potential within existing accounts. Despite GAAP net income remaining negative due to ongoing investments and stock-based compensation, Zscaler generated solid free cash flow (FCF) margin of 19% and a robust cash position, underscoring a balance sheet capable of funding growth initiatives while pursuing strategic acquisitions of large enterprise customers and vertical market expansion. Management emphasized the long-run opportunity of scaling to a $5 billion ARR and beyond, driven by an expanded go-to-market engine, top-account programs, and continued platform evolution (e.g., Zero Trust for Workloads, Branch, and AI-powered solutions). The QQ2 print also highlighted the resilience of demand amid a challenging macro backdrop, with executives reiterating confidence in continued Zero Trust spend and a favorable competitive environment relative to legacy firewall-centric approaches.
Key Performance Indicators
Key Insights
Revenue: $525.0 million, +35% YoY, +6% QoQ.
Billings: $628.0 million, +27% YoY, +37% QoQ.
RPO: $3.613 billion, +29% YoY; current RPO ~51% of total.
NRR (12-month trailing): 117%.
Gross margin (GAAP): 80.8% reported; (reported gross margin ratio in the data set is 0.804 for the quarter, with a note that accounting change extended depreciation life boosted margin by ~60 bps YoY).
Gross margin (non-GAAP): ~80.0%–80.8% (management commentary references 80.8% for the quarter).
Operating margin (...
Financial Highlights
Revenue: $525.0 million, +35% YoY, +6% QoQ.
Billings: $628.0 million, +27% YoY, +37% QoQ.
RPO: $3.613 billion, +29% YoY; current RPO ~51% of total.
NRR (12-month trailing): 117%.
Gross margin (GAAP): 80.8% reported; (reported gross margin ratio in the data set is 0.804 for the quarter, with a note that accounting change extended depreciation life boosted margin by ~60 bps YoY).
Gross margin (non-GAAP): ~80.0%–80.8% (management commentary references 80.8% for the quarter).
Operating margin (GAAP): −$47.1 million operating loss; operating income margin shown as −8.97% in GAAP data.
Operating margin (non-GAAP): 19.6% (as stated by management).
Net income: −$28.47 million; net income margin: −5.42% (GAAP).
EPS (basic/diluted): −$0.19 per share.
Weighted shares: ~148.95 million.
Free cash flow: $100.79 million; FCF margin ~19%.
Operating cash flow: $142.07 million; capital expenditures (capex): $41.28 million; FCF driven by working capital dynamics and strong cash generation.
Cash & equivalents + short-term investments: ~$2.449 billion; net cash position: approximately −$204.9 million (net debt) indicating a net cash position when offset by investments.
Cash conversion and liquidity metrics indicate substantial liquidity to fund growth initiatives and the ongoing go-to-market investments.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
525.00M |
35.45% |
5.70% |
| Gross Profit |
407.11M |
35.71% |
5.66% |
| Operating Income |
-47.07M |
27.85% |
-2.20% |
| Net Income |
-28.47M |
50.45% |
14.97% |
| EPS |
-0.19 |
52.50% |
17.39% |
Key Financial Ratios
operatingProfitMargin
-8.97%
operatingCashFlowPerShare
$0.95
freeCashFlowPerShare
$0.68
priceEarningsRatio
-308.26
Management Commentary
Key management themes from the QQ2 earnings call include:
- Strong top-line momentum and operating leverage, with revenue up 35% YoY and a 27% rise in billings, signaling durable demand for Zscaler’s broader platform beyond ZIA/ZPA.
- A deliberate shift to an account-centric sales motion, led by Mike Rich as Chief Revenue Officer, aimed at accelerating large enterprise adoption and cross-pillar upsells.
- A continued emphasis on vertical selling and stronger federal government traction, including cabinet-level agency upsells, which support longer-cycle, larger-ACV deals and a sizeable upsize opportunity in the public sector.
- Ongoing investments in R&D and go-to-market execution to scale toward a $5B ARR target, including AI-driven products (Risk360, Business Insights) and Zero Trust for Workloads/Branch, with early but meaningful traction.
- Management acknowledged macro risk and deal scrutiny but stressed that demand for Zero Trust security remains robust, budgets are still allocated for cyber, and customers prefer integrated platforms that reduce cost and eliminate “shelf wear” associated with ELAs from point products.
- Management’s guidance reflects prudent modeling with revenue guidance for Q3 of $534–$536 million and full-year revenue guidance of $2.118–$2.122 billion, signaling a seasonally weaker Q3 but strong full-year trajectory, with gross margins around 80% and elevated data-center CapEx later in the year.
- Notable management quotes: “Revenue grew by 35% year-over-year, and billings grew by 27%.” (Jay Chaudhry) and “We have a 6x opportunity in our existing install-based upsell new products.” (Remo Canessa).
Revenue grew by 35% year-over-year, and billings grew by 27%.
— Jay Chaudhry
We have a 6x opportunity in our existing install-based upsell new products.
— Remo Canessa
Forward Guidance
Near-term outlook remains constructive amid macro headwinds. For Q3 2024, Zscaler guides revenue of $534–$536 million, up roughly 28% YoY, with gross margins around 80% and non-GAAP EPS of $0.64–$0.65 on ~161 million diluted shares. Full-year fiscal 2024 revenue is guided to $2.118–$2.122 billion, representing about 31% YoY growth, with calculated billings of $2.55–$2.57 billion (about 25–26% YoY). Management notes that emerging products (e.g., ZDX, Zscaler for Workloads) may initially contribute lower gross margins, reflecting investment in time-to-market and growth rather than near-term margin expansion. Operating profit for FY24 is guided to $395–$400 million with free cash flow margin in the low-20% range, and data center CapEx expected to be in the high-single-digit percentage of revenue.
Key factors to monitor:
- Progress of the top accounts pilot program and vertical selling expansion;
- The mix impact of higher-ACV, multi-pillar deals on remaining performance obligations and billings seasonality;
- The velocity of AI-enabled products (Risk360, Breach Predictor, Business Insights) and their contribution to large-portfolio upsell opportunities;
- Federal market penetration and international FedRAMP-like programs expansion;
- Continuation of the shift from opportunity-centric to account-centric selling to unlock larger ARR expansions.
Assessment: The guidance remains conservative given the go-to-market transformation and macro uncertainty, but the underlying demand for Zero Trust and platform convergence supports a favorable long-term trajectory toward the $5B ARR objective, provided the sales execution remains disciplined and there is continued upsell momentum across platform pillars.