Zscaler CEO Jay Chaudhry joins Yahoo Finance Live to discuss company earnings, cloud computing, Zscaler’s acquisitions and deals, the cybersecurity landscape, and how tech is navigating macroeconomic factors.
Video Transcript
JULIE HYMAN: Zscaler reported its numbers last week. And some of the billings numbers did disappoint analysts and those on the street. But let's dig more into what's going on in that business.
We're joined now by Jay Chaudhry, Zscaler CEO. Jay, thank you for being here. And I have to start by saying, I embarrassed myself a little bit last week. When we talk about cybersecurity and enterprise software writ large, I have to admit, sometimes I have trouble with the nuance of what each company does and kind of where they fit into the stack. So let's start there, if we can. Talk to me about Zscaler and where you guys fit into the picture.
JAY CHAUDHRY: So we are like an international airport. When people are coming to the country, leaving the country, we are making sure the right person can go to the right plane to the right country with the right luggage. So we're inspecting to make sure the visa is given, passport is right, to keep people safe.
All bad things come from the internet. All good things leave through the internet. So we are the checkpost to make sure right party talks right party for cyber point of view.
Now, if you contrast that from endpoint security, endpoint security says, let's make sure my laptop doesn't get infected. It's like having a door and lock on the house so people don't wander in. We complement endpoint security by doing security in the cloud. So if we know that a bad guy is trying to get close to your house, we stop them at the airport. They can't even come close. Does that help?
JULIE HYMAN: Yes, it does help, Jay. Thank you very much for that explanation. So as we talk about that stack then, as I mentioned, you guys came out with earnings. The earnings looked strong. They beat estimates. There was a little bit of commentary around billings and the macro environment.
So if we are seeing tech companies make their budgets right now, are there parts of cybersecurity where you're concerned that we're going to see some cutbacks?
JAY CHAUDHRY: There are cutbacks and broad IT budgets at the CIO level. Generally, the cyber budget is either flat or slightly up. So there is some pressure and scrutiny. But overall, cyber is much stronger.
Zscaler delivered good results. Our revenue went up 52% year over year. Our earnings were-- sorry-- our billings were up 34% or so. On cash flow, 16% revenue. So these are good numbers.
Markets do what they do. Sometimes it's a matter of expectations being set. I have one focus-- build innovative, great solutions for our customers and make sure we support our customers, we keep them safe, we keep our country safe.
I just came from a large public sector security summit that Zscaler did yesterday in Washington, DC. We had some of the big cabinet agencies representing us-- Melinda Rogers, the CIO of DoJ, was one of the key speakers. So we are protecting our country. We are protecting some of the largest companies out there, which includes 40% of the Fortune 500 companies.
INES FERRé: Jay, Ines here. Given that macro backdrop that you just talked about, which pockets of the market do you see the next opportunity in?
JAY CHAUDHRY: So if you think about some of the verticals, we are seeing some tightness on technology sector. We're seeing some tightness in consumer sector. But most of the other companies-- financial companies, manufacturing companies-- they've got strong, strong interest.
The larger companies have to worry more about their cyber because they're generally targets. So we work with them. So we see pretty good strength in large enterprises. There was a time when Europe was a little weaker. Europe has become pretty strong.
So we see business strength, overall, pretty good across the board. That's why Zscaler actually raised its forecast slightly, while many of the companies are reducing their forecasts.
JULIE HYMAN: And Jay, we've been talking all day long-- really all week long, all year long-- about rising rates, which, of course, has had an effect on corporate budgets. That's one of the things that's been pressuring them. How do you think about rates for your business and your clients' business? And how much of a headwind is that going to be?
JAY CHAUDHRY: So rising rate is putting pressure on IT budget. That's why CIOs are being asked to reduce their IT budget. So CIOs I talk to, and I talk to lots and lots of them. They're looking for two things from companies like Zscaler. Number , one, they need to protect their enterprises. So cyber is important for them.
Number two, because of budgetary pressure, they are looking for cost reduction savings. And Zscaler is one of the few cyber companies that's eliminating a lot of foreign products and actually saving money.
So our dialogue with CIOs starts with, I can give you cyber, and I can give you cost savings. And that's how our business is growing. That's how there's a lot of interest in working with companies like Zscaler. Otherwise, many cyber companies that essentially cost, that's what sets us apart.
INES FERRé: Jay, Dan Ives of Wedbush had made some comments after you reported your results. And he talked about federal cybersecurity spending, which looks good. Is that an area where you see growth?
JAY CHAUDHRY: Federal government has done a great job. The Biden administration, over the past two years, has pushed for better investments in zero-trust architecture, which is the better way to protect rather than traditional firewall, VPN-based architecture.
We have strong federal presence. We have invested in federal over the past several years by getting some of the biggest certifications. If you don't have FedRAMP certifications, you can't play. We have the highest level certification.
There are about 700-plus public sector entities and organizations who are Zscaler customers. So we had good federal business in Q1. Q2 was somewhat light. And we expect the second half to be quite strong.