Zscaler is set to report its earnings, and there is optimism surrounding the stock due to a potential reversal from bearish to bullish trends. The implied move for options is 12.2%, higher than the long-term average of 11.3%, indicating that options are relatively expensive. The strategy of using a call spread risk reversal allows for long exposure with minimal premium outlay while managing risk.
Zscaler's revenue is growing at 26% year-over-year, with trailing revenues projected to reach $3.32 billion and free cash flow margins around 27%. The company is expected to generate approximately $1 billion in next twelve months (NTM) free cash flow, with a year-over-year growth rate of nearly 24%.
Zscaler's Zero Trust Exchange platform is crucial for AI security, providing a secure pathway for enterprise AI agents to access cloud resources, a capability that traditional firewall vendors struggle to replicate. However, there are risks to consider, such as potential deceleration in net retention rates and competition from hyperscalers.
The market has already priced in some positive expectations, making this earnings report critical, as the street anticipates reported profits. Overall, Zscaler's fundamentals are strengthening, and the AI security narrative is gaining traction, positioning the company favorably despite existing challenges