Q4 2024 Summary
Published Mar 5, 2025, 11:18 PM UTC- Zscaler is expanding its competitive advantage over rivals due to its superior, highly reliable, and resilient cloud-native proxy architecture, and is seeing a widening gap between its offerings and those of competitors lacking such architecture. The company's brand has strengthened, with the number of new logos doubling in 2024 over 2023, indicating growing market share and customer trust in their integrated platform.
- The recent sales leadership changes are yielding positive early results, increasing upsells and new logo acquisitions, especially in large deals and accounts. The number of customers with over $1 million in ARR has increased to 567, and those with over $5 million in ARR have reached 260, showing that Zscaler's account-centric sales approach is driving significant growth.
- Customers' heightened focus on resilience and mission-critical services, particularly after recent cloud outages by competitors like CrowdStrike and Microsoft, is benefiting Zscaler due to its strength in providing highly available and resilient security solutions. This has led to increased customer engagement and deployment of Zscaler's business continuity plans, reinforcing their market position.
- Zscaler's scheduled billings growth in the first half of fiscal 2025 is expected to be only 7% year-over-year, significantly lower than the projected 23% growth in the second half, indicating potential near-term headwinds and reliance on back-end loaded performance.
- Higher-than-expected sales attrition in Q3 and the time required for new account representatives to reach full productivity may impact sales execution and growth in the first half of fiscal 2025.
- Customers' reluctance to consolidate all security products with a single vendor could hinder Zscaler's ability to sell incremental products beyond its core offerings, potentially limiting upsell opportunities.
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Billings Guidance and Growth
Q: What explains the 7% vs. 23% growth in billings halves?
A: Remo explained that scheduled billings growth is 7% in the first half and 23% in the second half due to 3-year contracts signed during challenging periods, resulting in lower scheduled billings now ( , ). The business is becoming more second-half weighted. -
Sales Productivity and Guidance
Q: Any concerns tempering expectations for sales cycles or macro?
A: Despite higher attrition in Q3, which stabilized in Q4, they expect account reps to reach full productivity in the second half ( ). The pipeline supports guidance, and they see strong demand for Zero Trust solutions. -
Competitive Landscape and Pricing
Q: How is competition and pricing impacting your environment?
A: Jay stated that while the macro remains challenging, large enterprises demand top-tier cyber solutions, and Zscaler can replace multiple products like firewalls and VPNs, offering cost savings ( , ). He is not worried about competition and can handle pricing situations. -
Impact of CrowdStrike Outage
Q: Has the CrowdStrike outage changed customer strategies?
A: Customers are more focused on resilience, which is Zscaler's strength. After the outage, about 700 customers attended briefings on their mission-critical service ( ). Approximately 40% of large customers have deployed BCP or ZIA for resilience. -
Emerging Products Growth
Q: What's the sustainability of growth in emerging products?
A: Emerging products represented 22% of new and upsell in fiscal '24, up from 18% in fiscal '23, expected to reach mid-20s in fiscal '25 ( , , ). Significant opportunity remains in areas like workload protection and IoT/OT, with little real competition. -
Large Deal Pipeline and Consolidation
Q: Can you discuss growth in large deals and consolidation role?
A: There's no slowdown in consolidating point products. Deals are getting bigger, with 567 customers over $1 million ARR and over 60 customers with $5 million ARR ( ). Customers seek better security, operational efficiency, and cost savings. -
Expansion into Workloads and IoT/OT
Q: How does platform expansion affect contracts and growth?
A: Expanding into workloads and IoT/OT is natural, with emerging products growing to 22% in fiscal '24 and expected to reach mid-20s in fiscal '25 ( ). Engaging more in device segmentation for IoT/OT without firewalls, increasing competitive gap. -
Sales Leadership Changes
Q: Early indications from new sales leadership?
A: Transition to account-centric focus is progressing well. Number of $1 million ARR customers increased to 567, and GSIs are embedding Zscaler's offerings ( ). Quality of sales leaders is high, contributing to upsell and new logos. -
Headcount Growth Plans
Q: What's the plan for headcount growth in fiscal '25?
A: Expect to increase headcount across all areas but at a more moderate pace than fiscal '24. Added about 1,400 employees in fiscal '24, going from 5,900 to 7,300 staff ( ). -
Net Revenue Retention (NRR)
Q: Thoughts on NRR in fiscal '25 billings guide?
A: NRR is at 115%, considered outstanding at their scale. Not providing specific guidance on NRR but focusing on driving top-line business from both existing and new customers ( ). -
Linearity of Quarter and Current Trends
Q: Any abnormalities in quarter's linearity or recent trends?
A: Nothing unusual in Q4 linearity; quarters are more back-end loaded, similar to prior quarters. August business is progressing as usual ( ).