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Zscaler: Cybersecurity is a ‘rock of Gibraltar’ investment area, analyst says

Wedbush Managing Director and Senior Equity Analyst Dan Ives joins Yahoo Finance Live to discuss Zscaler earnings, what it says about the cybersecurity space, and what cryptocurrency

Video Transcript


- All right, Zscaler shares are soaring today. It's a top trending ticker on to Yahoo Finance, the move higher up 21% right now, coming on the heels of positive earnings results. Revenue growing 61% from a year ago. Wedbush's Dan-- Wedbush's Securities Managing Director Dan Ives. A mouthful.

Joining us now, Dan, it's great to see you. The headline of your report here today, your note on Zscaler saying, "It delivered a robust Josh Allen like performance with strong fiscal year '23 guidance the key." What's Zscaler doing right? Why is it able to weather the downtrend that we're seeing in so many other aspects of the industry?

DAN IVES: Look, I think it's cybersecurity. I mean that continues to be almost a rock of Gibraltar area of [INAUDIBLE]. Zscaler front and center, in terms of the move to the Cloud, in terms of where they secure. And I also think sentiment was pretty negative going in. And it just shows, Josh Allen-like fashion, continues to crush. And that's why the stock's doing what it is.

- And, Dan, year to date, the stock is off about 41%. And despite that, though, we saw that PricewaterhouseCoopers are showing that cybersecurity still the top business concern. What are we seeing in terms of the correlation between how important businesses say cyber is and what they're actually doing investment wise?

DAN IVES: Sure, and look, obviously, a disconnect in terms of what we've seen this year because of the risk off. And there's a high multiple, high growth name. And you've seen this stock, obviously, offered in a risk off environment. But if you look at where spending is, and we've seen this not just with Zscaler-- Palo Alto, CrowdStrike, Check Point, across the board. I mean, that continues to be just a massive area of spend. And all of our charts do not show this is an area that's going to soften, even despite the macro. That's why cybersecurity, that continues to be one of our favorite pockets of spending here in this white knuckle environment.

- So this isn't just a Zscaler strength? You think moving forward, there's an entire segment strength. And how do geopolitical events factor in here, Dan?

DAN IVES: Yeah, I look at it-- I view it as a table pounder sector. I mean, obviously, it's easy to sell tech in this environment. But if I look at cyber, I mean, that's a spending area that's actually becoming more of an increase of budgets, not a decrease, especially the shift to the Cloud. Only 40% of workloads have moved to the Cloud.

And that's why it's not just names like Zscaler and CrowdStrike. Then there's names like Tenable, CyberArk, and others that are going to benefit. And I just think in an environment that continues to be a bifurcated area of tech spending, this is going to continue to be strong. And I think that's the big takeaway in terms of last night from Zscaler.

- Dan, you have a $200 price target on the stock. The move today, the 22% jump puts Zscaler just above 188 a share. You're very, very bullish on the name going forward. Sounds like you might need to revise your price target to the upside pretty soon.

DAN IVES: I mean, look, our view is that as they continue to execute, this is a stock that could go well into the 2's. And I think what we're seeing play out here is that it's very easy, a lot of yelling fire in a crowded theater across tech. I think what you're seeing from Zscaler, from DocuSign, from what I believe Oracle is, too, is that spending's holding up well on enterprise. And this is significant, especially as we go into our earnings season for 3Q.

- And so, Dan, who do you like in terms of who's most likely to carry a bigger market share going forward?

DAN IVES: I think Zscaler and CrowdStrike stick out. But our favorite name continues to be Palo Alto. I mean, Palo Alto is an Installed Based play. I think it's a rereading name. And especially as the shift to the Cloud happens, they're going to be gaining more and more share. But it's not a zero sum game.

I mean, that's why I think you have to own the basket. You own Zscaler or CrowdStrike or Palo, you names like CyberArk, Hannibal, Qualis, and others because I also think there's going to be a lot of M&A in cybersecurity, both strategic and financial M&A. And that's something I think to keep an eye out as we go into the year end.

- Dan, got to circle back to the Josh Allen-like performance. It was spectacular last night. I mean, three touchdowns, 300 yards. What was he-- 26 of 31. Who's the biggest competitor to the Bills as you look at the season forward? And I got to get a quick take on Apple and their rollout. Didn't raise prices on the iPhone 14. The stock largely said, eh, sell it.

DAN IVES: Yeah, look, for calling Zscaler as Josh Allen throwing the digs, I think maybe the Mahomes is probably Palo Alto there in terms of a closer. And look, in terms of Apple, that was the jaw dropper that they didn't raise prices by $100, which is what we and many others believed. I think it just shows Cook and Cupertino flexing their muscles.

And I think, ultimately, that's really going to be significant as we see demand. I could even already tell you, pre-orders from what we're seeing on the website, will potentially could be above where iPhone 13 was. Pretty positive in terms of the dark clouds that we're seeing on the macro.

- Always hard to bet against Apple. Thank you as always. Good to have you on. Dan Ives, thank you for joining us this afternoon.