Zscaler Shares Dip Amid Q4 Miss, but Cloud-Security Market Still Attractive

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  Published in Stocks and Investing on Friday, December 12th 2025 at 14:16 GMT by Seeking Alpha
      Locale: UNITED STATES

Zscaler Has Fallen, but the Neighborhood Is on Sale

A recent piece on Seeking Alpha argues that while Zscaler’s (ZS) share price has taken a noticeable hit, the broader cloud‑security market still presents attractive buying opportunities. The author examines the company’s latest earnings, compares its valuation to peers, and highlights macro‑level trends that may lift the entire sector in the coming quarters.

1. The Immediate Catalyst: Q4 2023 Results

Zscaler reported fourth‑quarter revenue of $215.8 million, falling short of consensus estimates of $220 million. The shortfall is largely attributed to weaker enterprise spend on security during a period of broader economic uncertainty. Although the company’s revenue growth of 28% year‑over‑year still outpaces most of the market, the guidance for 2024 (estimated $870 million in revenue) comes in below analysts’ forecasts of $900 million.

Earnings per share (EPS) for the quarter came in at $0.48, versus the consensus expectation of $0.55. While the company remained profitable, the lower-than‑expected earnings are a major reason the stock slumped nearly 20% in the days following the earnings release.

The author links to the company’s 10‑K filing (link 1) for a deeper dive into the financials. In that filing, Zscaler notes that its gross margin of 81% stayed largely unchanged, while operating expenses increased by 12% year‑over‑year as the firm invests in sales and marketing to shore up market share.

2. Valuation Relative to the Peer Group

The article contrasts Zscaler’s price‑to‑earnings (P/E) ratio of 35x (as of the last close) with those of its nearest competitors:

Even with a modest drop in share price, Zscaler remains cheaper than CrowdStrike and Palo Alto, but a bit pricier than Fortinet. The piece references a Morningstar analysis (link 2) that argues many cloud‑security names have been over‑valued following the 2021–2022 rally, and the current market correction is an opportunity for value‑seeking investors.

The author also cites a Fidelity research note (link 3) that recommends a “buy‑on‑the‑dip” approach for Zscaler, assuming that the company can maintain its 25–30% YoY revenue growth in 2024. A key takeaway is that the broader “neighborhood” – the entire cloud‑security industry – appears over‑discounted relative to its historical averages.

3. Macro‑Trends Fueling the Sector

One of the most compelling parts of the article is the focus on macro‑level forces that should continue to drive demand for Zscaler’s services:

• Remote‑First Workforces: The pandemic has accelerated the shift to hybrid and remote work, creating a larger surface area for cyber‑threats. The author links to a McKinsey report (link 4) that projects that 70% of organizations will keep a hybrid workforce in 2025.
• Cloud Adoption Surge: Enterprises are moving workloads to the cloud at an estimated 30% CAGR (link 5). Cloud‑native security solutions like Zscaler’s Zero‑Trust Exchange are seen as essential.
• Regulatory Push: New data‑privacy regulations (GDPR, CCPA, and forthcoming EU AI Act) increase the need for secure data handling. The piece cites a Gartner briefing (link 6) on compliance costs rising by 25% in the next two years.
• Cyber‑Attack Frequency: A IBM Security survey (link 7) highlights a 50% increase in phishing attacks last year, reinforcing the need for next‑gen security.

These macro drivers are cited as reasons why the “neighborhood” – the cloud‑security sector – should remain resilient even if Zscaler’s quarterly numbers falter.

4. Technical Analysis: Where is Zscaler Headed?

The article includes a short technical chart of Zscaler’s price action. The key points are:

• Resistance at $80: The stock has historically struggled to close above this level. The 200‑day moving average sits around $78, acting as a “soft” ceiling.
• Support at $68: A strong support zone formed during the 2023 earnings dip, and the current price sits just above this level.
• Relative Strength Index (RSI): At 55, the stock is neither overbought nor oversold. The author warns that a pullback could test the 68 support and that a break below would require a substantial catalyst.

The piece concludes that the present price of $73.45 (at the time of writing) is an attractive entry point given the upside potential to $80 (the next resistance) and further upside if the sector rally gains momentum.

5. Risks & Caveats

While the article is bullish on Zscaler’s upside, it is balanced by a number of risk factors:

• Competition: Palo Alto Networks and Fortinet are expanding their cloud security offerings, potentially eroding Zscaler’s market share. The author links to a Forrester Wave report (link 8) that rates Zscaler as a “Strong Performer” but notes a “slight disadvantage” against Palo Alto in terms of integration with broader security suites.
• Earnings Volatility: The company’s margin expansion relies heavily on cost‑effective sales and marketing, and any slowdown could hurt profitability.
• Valuation Concerns: Even though Zscaler is cheaper than CrowdStrike, it remains expensive relative to its peers’ current earnings, so the upside is somewhat capped.
• Macro Risks: A slowdown in cloud adoption or a sudden tightening of regulatory burdens could reduce the growth trajectory.

The article ends by stating that investors should weigh these risks against the upside potential, and that a disciplined risk‑management strategy (e.g., stop‑loss at $65) is advisable.

6. Bottom Line

In summary, the Seeking Alpha piece paints a nuanced picture: Zscaler’s share price decline is a short‑term reaction to a softer Q4 than expected, but the company still boasts solid fundamentals, a strong growth outlook, and a product positioned for the future of work. The broader cloud‑security market, fueled by hybrid‑work, cloud migration, regulatory pressure, and cyber‑attack frequency, remains an attractive sector that may provide a tailwind for Zscaler if it can sustain its growth momentum.

For investors considering an entry into Zscaler or the cloud‑security space, the article recommends watching Q1 2024 earnings for a “second look” on the guidance, monitoring key technical levels for price support, and keeping an eye on macro‑economic indicators that could accelerate cloud adoption. If those conditions hold, the author’s thesis suggests that Zscaler’s “fall” is a buying opportunity, while the surrounding “neighborhood” of cloud‑security companies continues to be on sale.