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Zscaler's higher quarterly expenses outshine strong forecasts

(Reuters) — Zscaler (ZS) forecast quarterly revenue above analysts' estimates on Monday, but indications of strong cybersecurity spending were overshadowed by rising operating expenses.

Shares of Zscaler fell more than 6% in premarket trading on Tuesday as the cloud security company's operating expenses for the first quarter jumped by about 24% to $431.4 million.

A push towards cyber security and drastic developments in artificial intelligence across industries employing vast, vulnerable data have led to increased costs for firms like Zscaler, as they rush to develop new offerings.

"In order to meet this growing need, we are scaling our go-to-market and R&D organizations," Zscaler Chief Executive Jay Chaudhary said in a statement.

Total calculated billings in the first quarter grew about 34% to $456.6 million, but declined 37% from the preceding quarter. CFO Remo Canessa attributed the fall to "a difficult comparison to the fourth quarter which had a $20 million upfront billing on a multiyear deal".

The company beat first-quarter profit and revenue estimates.

For the second quarter, Zscaler expects revenue between $505 million and $507 million, above analysts' average estimate of $496.7 million, according to LSEG data. The company's forecast for profit also topped expectations.

Global spend on cloud security is expected to rise nearly 25% in 2024, according to research firm Gartner.

Zscaler also raised its annual revenue and profit forecasts.

The company's annual revenue is now estimated to be between $2.09 billion and $2.10 billion, compared to its previous forecast of $2.05 billion to $2.07 billion.

The California-based company revised its annual adjusted profit expectations to $2.45 to $2.48 per share, from $2.20 to $2.25 per share.

(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Maju Samuel)

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