By Wallace Witkowski, MarketWatch
Zscaler Inc. shares closed above $100 for the first time Monday on a second straight session of record highs, as the cloud-based cybersecurity company reaped the benefits from COVID-19-related work-from-home trends.
Zscaler /zigman2/quotes/203585803/composite ZS +2.76% shares rallied more than 12% to close at a record $109.98 Monday, after hitting an intraday high of $112.73, adding to a huge 29% gain on Friday. Shares are up 137% on the year.
In comparison, the ETFMG Prime Cyber Security ETF /zigman2/quotes/207892345/composite HACK +2.19% is up 10% for the year, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.60% is down 5% and the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +2.26% is up 6%.
Shares surged in earnest after Zscaler reported late last Thursday that its quarterly results and outlook topped Wall Street estimates.
Of the 24 analysts who cover Zscaler, 12 have buy or overweight ratings, 10 have hold ratings, and two have sell ratings, along with an average target price of $90.33, according to FactSet data.
Cowen analyst Nick Yako, who has an outperform rating and a $100 price target, said Zscaler’s Private Access (ZPA) product, which allows users to corporate apps without network access, was a “driving factor” behind the company’s most recent results.
“ZPA usage grew 10x during the quarter as many new and existing customers deployed ‘hundreds of thousands’ of new ZPA users,” Yako said in a recent note. “Mgmt quantified ZPA’s impact and mentioned it accounted for ~43% of new and add-on biz during the quarter.”
“While many enterprises use ZPA as a VPN replacement, customers are increasingly purchasing ZPA to implement a zero trust network access (ZTNA) approach,” Yako said. “ZTNA represents a modern approach to security that revolves around a perimeter-less world compared to the traditional network security perimeter model. Therefore, the increase in remote work serves as a natural accelerant for ZTNA (and therefore ZPA) as most employees are currently residing and working outside the traditional corporate network.”
Zscaler’s partnerships with Microsoft Corp. /zigman2/quotes/207732364/composite MSFT +2.28% and CrowdStrike Holdings Inc. /zigman2/quotes/212513426/composite CRWD +1.86% are also providing tailwinds for the company, noted Needham analyst Alex Henderson, who has a strong buy rating and a $110 price target on the stock.
“Office 365 and Azure adoption remain long-term tailwinds for Zscaler, and the company once again called attention to their recognition as a finalist in two Microsoft Security 2020 Partner Awards,” Henderson said. “Zscaler continues to train Microsoft professionals on their solution and is seeing positive traction with the salesforces working together.”
“Similarly, Zscaler noted that the recent integration with CrowdStrike is providing similar benefit, with new opportunities appearing with Global 2000 customers being pursued by both companies sales force in tandem,” Henderson added.
CrowdStrike is scheduled to report quarterly earnings after the close of markets Tuesday. CrowdStrike shares are up 90% on the year.
All around, shares of companies that facilitate work-from-home environments are doing well on the year. Shares of Zoom Video Communications Inc. /zigman2/quotes/211319643/composite ZM +6.78% are up 200%, shares of Twilio Inc. /zigman2/quotes/205796518/composite TWLO +2.78% are up 102%, Okta Inc. /zigman2/quotes/210420951/composite OKTA +5.71% shares are up 78%, and shares of Atlassian Corp. /zigman2/quotes/207177221/composite TEAM +3.13% are up 56%.