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Zscaler (ZS), a cybersecurity company focused on Zero Trust and Private Access cloud products, beat Q4 estimates across the board and achieved a new milestone with quarterly bookings reaching the $1.0 bln mark. Despite the strong quarterly results, the stock is plunging lower as the company's FY25 EPS and billings guidance failed to impress and reignited growth and competitive concerns.

• During the earnings call, CEO Jay Chaudry painted a bullish picture surrounding the demand environment, commenting that customer adoption of ZS's Zero Trust platform is stronger than ever, as illustrated by new records for both new and upsell business in Q4. Additionally, the rise of GenAI technology is creating greater cybersecurity risks for enterprises, leading to robust demand for ZS's new GenAI security product. 
• The healthy business climate is evident across ZS's key metrics. With another top and bottom-line beat in the books for Q4, the company's winning streak against analysts' quarterly EPS and revenue estimates continued, extending beyond five years. Billings, a closely watched metric for ZS, also surpassed expectations, growing by 27% yr/yr to $910.8 mln, while the 12-month trailing dollar-based net retention rate came in at an impressive 115%.
• ZS was able to achieve these solid results even as it works through some significant changes in its go-to-market strategy. Last November, the company expanded its go-to-market executive team, appointing Mike Rich as its Chief Revenue Officer and Joyce Kim as its Chief Marketing Officer. At the core of the new strategy that Mr. Rich and Mr. Joyce is implementing is a shift from opportunity-based to account-centric selling, which should drive higher cross-selling related revenue.
• However, the company's FY25 billings guidance of $3.110-$3.135 bln, equating to estimated growth of 19-20%, suggests that tougher times are on the horizon. That's especially the case for 1H25 as ZS's guidance implies billings growth of just 13% for the first half of the year, followed by growth of 23% in the second half.
• ZS explained that it expects sales productivity to improve in the back half of the year and that its growing pipeline supports a second half acceleration in growth. Furthermore, the company stated that from a timing perspective, its contracted billings from the prior year's active contracts are set to increase by 7% in the first half and by 23% in the second half. Based on the stock's reaction, though, it's clear that this explanation did little to ease investors' growth concerns.

The main takeaway is that ZS performed quite well in Q4, demonstrating the resiliency of its business model in a difficult environment, but the sharp slowdown in billings growth that's expected in 1Q25 is spooking investors. Given the stock's rich valuation -- its P/S is north of 13x on a trailing 12-month basis -- an expected deceleration in growth is bound to hit shares hard.