Zscaler’s go-to-market approach focuses on Large Enterprises

Business Strategy and Outlook

Zscaler wagered heavily on the secular trend of cloud computing and how users would directly connect to cloud-based resources. Its bet has paid dividends, as it has leveraged a distributed cloud to deliver a multitenant security platform that offers security capabilities traditionally sold as purpose-built appliances. Although Zscaler has been at it since 2007, its business model and security approach are in their early innings, and there’s a long runway for growth as enterprises adopt cloud-centric security and zero-trust architectures. Zscaler’s software-as-a-service business model and the benefits that accompany this mode of software consumption, combined with an innovative product suite and a differentiated channel sales model, are all factors that will facilitate continued success winning enterprises that are consuming more cloud-based resources. Zscaler’s go-to-market approach focuses on large enterprises; the firm charges customers on a per-user subscription basis for access to its security cloud offerings.

Capabilities such as cloud firewall, data loss prevention, and application segmentation are encompassed within its two more mature solutions: Zscaler Internet Access and Zscaler Private Access. The malware detection and application control functionalities of ZIA primarily fall under the ambit of secure web gateways, and while ZPA is used for internal resource protection.

Zscaler faces entrenched competitors as well as a legacy appliance-based approach to security that is prevalent in the IT ecosystems of current and potential customers. Still, the firm will be able to maintain and augment its competitive positioning in a fragmented security vendor landscape. The secular trends of cloud and mobility have given rise to structural shifts in data traffic paths and volume. It is believed that enterprises will continue to leverage the internet, an open network rife with security vulnerabilities, for critical workloads. In turn, they will find value in the Zscaler’s offerings.

Financial Strength

Zscaler boasts a healthy balance sheet, with over $1.5 billion in cash and liquid investments versus $914 million of convertible senior notes as of the end of fiscal 2021. The company has been free cash flow (operating cash flow minus capital expenditures) positive since fiscal 2018, and this trend is expected to continue even as it expands its data centre footprint and invests in customer acquisition, as the benefits of a recurring revenue business model should offset the cash drag of investing activities. Zscaler has no dividend or share-repurchase program to support, and the cash that the company generates will either be placed into liquid investments or redeployed into the business to stimulate organic or inorganic growth.

Bulls Say’s

Zscaler is a disproportionate beneficiary of the security implications that arise from the secular trends of cloud and mobility.

Zscaler’s multitenant platform is best equipped to handle increasing web traffic.

By building out a platform of cybersecurity offerings around its flagship ZIA, Zscaler can lock customers into its ecosystem.

Company Profile

Zscaler is a security-as-a-service firm that offers its customers cloud-delivered solutions for protecting user devices and data. The firm leverages its position in 150 colocation data centres to deliver traditionally appliance-based security functionality, such as firewalls and sandboxes, as a completely cloud-native platform. The firm focuses on large enterprise customers and offers two primary product suites: Zscaler Internet Access, which securely connects users to externally managed application and websites (such as Salesforce and Google), and Zscaler Private Access, which securely connects users to internally managed applications. Both product suites encompass a broad g

(Source: MorningStar)

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