Zscaler Inc. shares fell Friday as Wall Street debated whether revenue or billings were a more accurate guide of the cybersecurity’s company’s fortunes as a recession-leery business environment delays big deals.
Executives told analysts they expected about a 9% sequential decline in quarterly billings, slightly more than the mid-single digit declines of late, citing delays in closing large deals. Citi Research analyst Fatima Boolani said that while “large-deal risk [was] clearly an issue,” the company had “a lot more explaining to do” on results and an outlook that was “objectively disappointing.”
“Appreciating billings growth headwinds stemming from more ramp-based contractual structures are a timing issue,” Boolani said, but added that “weaker bookings performance makes this harder to reconcile in our minds, and where higher profitability on new expense discipline [and 3% workforce reductions] are cold comfort.”
“Add to that a management team that is being disciplined around the pace of investment, in relation to the demand environment, and you get an improving margin / cash flow profile,” Auty said. “Things will all boil down to sales execution, and we believe the revenue growth is a better indicator of how Zscaler is executing, rather than the growth in billings.”
That was the case earlier in the week with identity-management software company Okta Inc. OKTA , which late Wednesday said the bulk of its businesses was in upsells and cross-sells to established customers, and Wall Street said the company was “partially out of the woods.”