By Wallace Witkowski, MarketWatch
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Zscaler Inc. and Splunk Inc. both topped Wall Street estimates in earnings reports late Thursday and saw shares surge in the extended session, but only one of the software companies retained that momentum into Friday trading.
Shares of Zscaler /zigman2/quotes/203585803/composite ZS +0.11% soared 22% to close at a record $60.57 after the company’s results and outlook came in better than analysts expected late Thursday. Shares last closed at a record $50.72 on Wednesday. Splunk /zigman2/quotes/203060494/composite SPLK -0.13% shares, which had been up nearly 6% premarket, slipped 0.9% to close at $135.65 as the company’s earnings and forecast topped the Street consensus. Splunk shares, like Zscaler’s, last closed at a record high on Wednesday, at $138.45.
Needham analyst Alex Henderson, who has a strong buy on Zscaler and raised his price target to $65 from $47.50, said the company’s Private Access service, which lets organizations provide secure access to internal applications and services, “continues to impress.” He noted it accounts for 15% or so of bookings, impressive for a new product, and that it could account for 40% to 45% of revenue over the next five years.
Wedbush analyst Daniel Ives, who has an outperform rating and upped his price target to $68 from $53, said the party is just getting started for Zscaler.
“Last night, Zscaler delivered a Picasso-like quarter highlighted by total revenue growing 65% and billings accelerating 74% year-over-year, crushing Street expectations as the company is hitting profitability much earlier than the Street expected,” Ives said.
Guggenheim analyst Imtiaz Koujalgi, who has a neutral rating and raised his price target to $45 from $40, said he was staying on the sidelines with Zscaler given the price of the stock.
“Topline growth was healthy, with revenue growth accelerating, and the company is also showing good leverage in the model,” Koujalgi said. “There are very few companies that are growing 50+% with positive margins and cash flows.”
Billings, however, were helped by an increase in upfront multi-year billings, Koujalgi said, and on an adjusted basis, could be interpreted as slowing down in momentum.
Evercore ISI analyst Kirk Materne, who has an in-line rating and raised his price target to $140, said Splunk is “clearly knocking the ball out of the park” as it posted 179 seven-figure deals in the quarter versus 111 last quarter and 61 in the year-ago quarter.
Jefferies analyst John DiFucci, who has a buy rating and raised his price target to $157 from $137, said even while new accounting standards may cause some confusion for Splunk, he believes “ the underlying business is likely even stronger than it appears.”
“We continue to view Splunk as a unique asset that represents one of the best ways to play the Big Data theme,” DiFucci said.
“We obviously got off the bus too early on this one,” said Bernstein analyst Mark Moerdler, who has a market perform rating and raised his Splunk price target to $131 from $119.
“The company has capped a massive year helped by an increase in contract duration, but very (very) strong performance nonetheless,” Moerdler said. “Continually impressive is the company’s ability to upsell its existing customer base and drive large deals.”
Of the 16 analysts that cover Zscaler, seven have buy ratings, seven have hold ratings, and two have sell ratings. Of those, six hiked their price targets on Zscaler to an average target of $50.67, according to FactSet data. Of the 39 analysts that cover Splunk, 31 have buy ratings, seven have hold ratings, and one has a sell rating. Of those, 15 analysts hiked price targets for an average price target of $144.03, according to FactSet.
In comparison to Zscaler and Splunk, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.07% closed up 0.7%, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -0.05% rose 0.8%, and the ETFMG Prime Cyber Security ETF /zigman2/quotes/207892345/composite HACK +0.17% rose 0.9%.
For the year, Zscaler shares are up more than 54% and Splunk shares are up more than 28%, while the S&P 500 has advanced nearly 12%, the Nasdaq has risen more than 14%, and the HACK ETF has gained nearly 20%.