EPS of $-0.10 increased by 52.6% from previous year
Gross margin of 78.0%
Net income of -14.88M
""We delivered a strong Q4 with all metrics exceeding the high-end of our guidance. Revenue grew 30% year-over-year. Billings grew 27% and profitability reached new records with operating margins of approximately 22% and free cash flow margin of 23%. We also achieved a new milestone of $1 billion in quarterly bookings in Q4, driven by an acceleration in new and upsell business in the quarter. We crossed $2.5 billion in ARR in Q4, and we expect to achieve a new milestone of $3 billion or more in ARR in fiscal '25."" - Jay Chaudhry
Zscaler Inc (ZS) QQ4 2024 Results Analysis: 30% Revenue Growth, Record Billings, and AI-Driven Platform Expansion
Executive Summary
Zscaler delivered a robust fourth quarter of FY2024, underscoring the strength of its Zero Trust platform in a challenging macro environment. Revenue rose 30% year-over-year to $593 million, and total calculated billings grew 27% YoY to $911 million, with QoQ billings up 45%. The company also announced ARR surpassed $2.5 billion in Q4 and guided to $3.0B+ ARR in fiscal 2025, signaling sustained scale-up and confidence in the land-and-expand model. Management attributed the strength to higher adoption of the broader platform (ZIA, ZPA, ZDX), expanding emerging products, and AI analytics driving incremental growth. Net income remained negative on a GAAP basis (-$14.9 million) as Zscaler continues to invest in growth and cloud infrastructure, but non-GAAP profitability and free cash flow were solid, with operating margin around 22% and free cash flow margin of 23%, supported by a cash-rich balance sheet (over $2.4B in cash and equivalents and short-term investments). The Q4 results, complemented by FY25 guidance and strategic product expansion (Airgap, Avalor, AI analytics), position Zscaler to pursue a large, multi-decade TAM in Zero Trust and security AI. The execution remains anchored in an account-centric GTM, GSIs partnerships, and a diversified customer base with meaningful ARR concentration in large enterprises. Delivering on the FY25 ARR and billings trajectory will depend on sustained RPO conversion, scaling of emerging products, and maintaining sales productivity through the go-to-market transition.
Key Performance Indicators
Revenue
592.87M
QoQ: 7.17% | YoY:30.30%
Gross Profit
462.66M
78.04% margin
QoQ: 6.58% | YoY:31.32%
Operating Income
-26.95M
QoQ: -509.31% | YoY:39.51%
Net Income
-14.88M
QoQ: -177.80% | YoY:51.50%
EPS
-0.10
QoQ: -176.54% | YoY:52.62%
Revenue Trend
Margin Analysis
Key Insights
Q4 2024 revenue: $593.0M, up 30% YoY and 7% QoQ. Americas 55%, EMEA 30%, APJ 15% geographic mix.
Gross margin: 81.1% in Q4 2024, flat to 81.4% in Q3 and up from 80.7% in the year-ago quarter. YoY expansion aided by accounting change (longer cloud infrastructure useful life) contributing ~60 bps of gross margin benefit.
Operating expenses: $353.0M, up 8% QoQ and 26% YoY.
Operating income: -$26.95M, operating margin of -4.55% (YoY improvement of ~260 bps).
EBITDA: $23.03M; EBITDA margin implied around 3.88%.
Financial Highlights
Revenue and profitability
- Q4 2024 revenue: $593.0M, up 30% YoY and 7% QoQ. Americas 55%, EMEA 30%, APJ 15% geographic mix.
- Gross margin: 81.1% in Q4 2024, flat to 81.4% in Q3 and up from 80.7% in the year-ago quarter. YoY expansion aided by accounting change (longer cloud infrastructure useful life) contributing ~60 bps of gross margin benefit.
- Operating expenses: $353.0M, up 8% QoQ and 26% YoY.
- Operating income: -$26.95M, operating margin of -4.55% (YoY improvement of ~260 bps).
- EBITDA: $23.03M; EBITDA margin implied around 3.88%.
- Net income: -$14.88M; net margin -2.51% (GAAP). Management notes the results are presented on a non-GAAP basis in the earnings release.
- Earnings per share: GAAP EPS -$0.0995; diluted -$0.0982.
Cash flow and liquidity
- Free cash flow (FCF) margin: 23% in Q4, with data center CapEx ~8% of revenue.
- Operating cash flow: $203.56M; free cash flow: $136.32M.
- Cash, cash equivalents, and short-term investments: ~$2.409B at quarter end; total cash position strengthens liquidity.
- Balance sheet leverage: Total debt ~$1.237B; net debt position is negative $185M (net cash).
Growth metrics and pipeline
- Calculated billings: $911M in Q4 2024, up 27% YoY and 45% QoQ.
- Remaining performance obligations (RPO): $4.418B, up 26% YoY; current RPO ~48% of total.
- ARR: Exceeded $2.5B in Q4; management targets $3.0B+ in FY25.
- 12-month trailing dollar-based net retention rate (NRR): 115%.
- Customers with ARR >$1M: 567; ARR >$5M: 60; customers >$100k ARR: 3,100.
- Q4 emerging products contribution: ~22% of new/upsell in FY24; expected to be in mid-20s% in FY25.
Guidance and long-term outlook
- Q1 FY2025 revenue guidance: $604–$606M, ~+22% YoY; gross margin ~80%; operating income $114–$116M; EPS $0.62–$0.63 (assuming 164M diluted shares).
- FY2025 revenue: $2.60–$2.62B, +20% to +21% YoY; operating income $530–$540M; non-GAAP tax rate 23%; EPS $2.81–$2.87; FCF margin 23.5%–24%; data center CapEx ~3pp higher as % of revenue.
- Longer-term view: Zscaler continues to invest in cloud/AI infrastructure and emerging products (ZDX, Zero Trust for Branch, AI analytics) to sustain growth and margin expansion. Management targets >$5B in ARR over time.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
592.87M
30.30%
7.17%
Gross Profit
462.66M
31.32%
6.58%
Operating Income
-26.95M
39.51%
-509.31%
Net Income
-14.88M
51.50%
-177.80%
EPS
-0.10
52.62%
-176.54%
Key Financial Ratios
currentRatio
1.09
grossProfitMargin
78%
operatingProfitMargin
-4.55%
netProfitMargin
-2.51%
returnOnAssets
-0.32%
returnOnEquity
-1.17%
debtEquityRatio
0.97
operatingCashFlowPerShare
$1.36
freeCashFlowPerShare
$0.91
priceToBookRatio
21.06
priceEarningsRatio
-450.8
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Themes from management commentary on the earnings call and Q4 results:
- Platform expansion and value proposition: Jay highlighted the success of the broader platform (ZIA, ZPA, ZDX) and the role of AI analytics in growth, noting emerging products contributed 22% of FY24 new/upsell. He emphasized selection by large enterprises for consolidation and Zero Trust architecture as a key differentiator.
- AI and data analytics: The company cited strong traction in AI analytics tools (Risk360, Business Insights) and Gen AI Security, with AI analytics contributing nearly 3 points to new/upsell growth in Q4 and 2 points in FY24.
- Land-and-expand and strategic deals: Management pointed to large, multi-year deals and up-sell opportunities (e.g., Fortune 200 financial services customer upgrading to a broader platform; top-10 pharma customer multi-pillar deployment). The land-and-expand approach is reinforced by a growing large-customer base (567 >$1M ARR, 60 >$5M ARR).
- Go-to-market evolution: Remo and Jay discussed a more mature, account-centric sales motion, improved sales productivity, and increased GSI investments, with eight of the top-10 GSIs now Zscaler customers.
- Resilience and cloud reliability: In light of outages at other providers, management emphasized Zscaler’s cloud resilience and business continuity capabilities (BCP) as a differentiator; 40% of large customers have deployed BCP for ZIA.
- FY25 trajectory and guidance: Both executives underscored a deliberate second-half billings acceleration, driven by stronger sales productivity, a growing pipeline, and scheduled billings from prior-year contracts. The company reiterated ARR growth targets and the expectation that emerging products will contribute mid-20s% of new/upsell in FY25.
"We delivered a strong Q4 with all metrics exceeding the high-end of our guidance. Revenue grew 30% year-over-year. Billings grew 27% and profitability reached new records with operating margins of approximately 22% and free cash flow margin of 23%. We also achieved a new milestone of $1 billion in quarterly bookings in Q4, driven by an acceleration in new and upsell business in the quarter. We crossed $2.5 billion in ARR in Q4, and we expect to achieve a new milestone of $3 billion or more in ARR in fiscal '25."
— Jay Chaudhry
"Our 12-month trailing dollar-based net retention rate was 115%."
— Remo Canessa
Forward Guidance
Forecast and resilience considerations for FY25:
- Revenue trajectory: FY25 revenue guidance of $2.60–$2.62B implies 20–21% growth, supported by a robust pipeline, improved sales productivity, and a broader platform that reduces customers’ reliance on multiple point solutions.
- Billings and timing: Management expects first-half billings to be 39–39.5% of full-year billings and Q1 billings to be ~16.2% of full-year guidance, with a 13% YoY billings increase in H1 and 23% in H2, reflecting a stronger second-half weighted mix.
- Margin and capex: Gross margin is guided around 80%; operating margin target around 20.3–20.6% for the year; FCF margin targeted at 23.5–24% with higher data center CapEx (roughly 3 percentage points higher as a percent of revenue) to scale cloud/AI infra.
- Tax rate: Non-GAAP tax rate raised to 23% from the prior level.
- Key risk factors and monitoring: Customer spend volatility in a cautious macro environment; the need to sustain sales productivity and fast conversion of RPO into revenue; potential pricing pressure as customers seek cost takeout; execution risk during the go-to-market transition; and the continued integration/accelerated adoption of emerging products (ZDX, Airgap, Avalor).
Assessment: The FY25 guidance appears achievable given the trajectory described by management (strong Q4 momentum, improving GTM efficiency, and a ramp in emerging products). Key factors investors should monitor include the rate of H2 billings acceleration, the ongoing uplift from AI analytics, the rate of expansion in the large enterprise cohort, and the integration/acceleration of GSIs into revenue growth.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
ZS Focus
78.04%
-4.55%
-1.17%
-450.80%
CRWD
75.20%
3.68%
2.33%
327.99%
OKTA
76.00%
-13.70%
-0.75%
-77.95%
NET
76.40%
-7.55%
-1.23%
-720.78%
MDB
75.00%
-15.50%
-5.19%
-130.62%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Long-term investment thesis remains favorable given Zscaler’s leadership in Zero Trust and its AI-enabled security platform. The Q4 results demonstrate strong top-line growth, expanding gross margins, and meaningful free cash flow, while ARR and billings momentum supports a high-visibility growth path into FY25 and beyond. The company’s land-and-expand strategy, GSIs partnerships, and portfolio expansion into workloads, IoT/OT, and data protection position Zscaler to capture a sizable share of a multi-decade cybersecurity market. Key monitorables include the rate of H2 billings acceleration, the incremental contribution from emerging products (ZDX, Airgap, Avalor), and the execution of the account-centric GTM across large enterprise segments. On valuation, the company trades at a premium given growth and profitability dynamics; however, sustained cash generation and a large TAM justification support multiple expansion potential as platform adoption deepens and AI analytics monetization accelerates.
Key Investment Factors
Growth Potential
TAM and platform breadth: Zscaler is capitalizing on a large addressable market for Zero Trust and AI-enabled security (addressable market cited at $96B). The company is expanding beyond user protection (ZIA) into workloads, applications, and IoT/OT with ZPA, ZDX, and Airgap, driving higher ARR and larger deals. Emerging products contributed 22% of FY24 new/upsell and are targeted to mid-20s% in FY25, signaling continued growth from new capabilities.
Profitability Risk
Macro spending and deal scrutiny: The environment remains challenging with a need to demonstrate ROI and cost savings. Concentration in large multi-year contracts increases revenue visibility but also introduces execution risk if renewals slow or large deals stall. Transition to account-centric selling may temporarily impact pace until the new GTM anchors fully mature; competition from established firewall/VPN vendors persists, though Zscaler emphasizes architectural advantages and platform breadth.
Financial Position
Strong liquidity and cash generation underpin growth: Cash and short-term investments of approximately $2.41B; net debt of about -$185M (net cash). Q4 free cash flow margin stood at ~23%, with OCF of ~$203.6M and capex of ~$67.2M, signaling healthy cash conversion. The balance sheet supports ongoing investment in data-center and AI infrastructure and potential M&A integration (Airgap and Avalor).
SWOT Analysis
Strengths
Leading Zero Trust platform with broad product breadth (ZIA, ZPA, ZDX) and AI analytics; enterprise resilience as a differentiator.
Strong ARR growth trajectory and record quarterly billings ($911M) with 2.5B+ ARR milestone achieved in Q4 2024.
High customer engagement with 567 customers >$1M ARR and 60 customers >$5M ARR; 12-month NRR at 115%.
Robust gross margins (~81%) and solid free cash flow margin (~23%), supporting ongoing investment in cloud infrastructure and emerging products.
GSI channel expansion and a shift to an account-centric sales motion; improvements in sales productivity; broad federal/government and international go-to-market opportunities.
Weaknesses
GAAP net income negative in Q4 2024 despite operating margin improvements, reflecting continued investment phases.
Emerging products initially carry lower gross margins and require scaling to achieve full margin potential.
Reliance on large enterprise deals; macro headwinds could impact deal timelines and renewal rates.
Execution risk during the transition to a more account-centric GTM and deeper integration with GSIs.
Opportunities
AI analytics and Gen AI Security as growth catalysts; expanding into Risk360 and data protection layers across web, SaaS, endpoints and cloud workloads.
Expansion into workloads, IoT/OT, and branch security via ZDX, Airgap, and Avalor acquisitions; potential to further consolidate customers’ security spend.
Federal/public sector expansion outside the U.S.; growing Global 2000 footprint and deepening relationships with DoD cabinet-level agencies.
Growing ARR and platform-based contracts enable stronger upsell/land-and-expand dynamics and longer-duration contracts.
Threats
Macro uncertainty and pressurized IT budgets could delay large deals or push expectations for ROI timelines.
Intense competition from firewall/VPN incumbents attempting to mimic cloud-native Zero Trust capabilities; pricing strategies may evolve.
Security/regulatory developments and potential platform outages could impact customer trust if not mitigated by resilience measures.
Zscaler Inc (ZS) QQ2 2025 Earnings Review: ARR >$2.7B, NRR 115%, and AI-driven Data Protection Underpin Growth in a Rapidly Expanding Zero Trust Platf...