Zscaler, Inc. (NASDAQ:ZS) is one of the best falling stocks to invest in now. On April 22, Morgan Stanley analyst Meta Marshall downgraded Zscaler, Inc. (NASDAQ:ZS) from Overweight to Equalweight and cut the price target to $155 from $200.
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The analyst said Zscaler’s platform expansion story is not playing out as expected and that there are no meaningful positive catalysts on the horizon. Incidentally, Morgan Stanley had upgraded the stock on the thesis that Zscaler could grow beyond its core business. The firm also believed the company would cement itself as a third major cybersecurity platform vendor, alongside industry giants like Palo Alto Networks and CrowdStrike. The plan had three pillars, including expanding through the Red Canary acquisition, building out data security capabilities, and growing Zscaler Digital Experience, or ZDX.
Of those three, only ZDX has shown real momentum, noted Marshall. He stated that the product crossed $100 million in annual recurring revenue, and bookings grew 80% year over year. However, Red Canary, the acquisition that was supposed to bolster Zscaler’s threat detection capabilities and broaden its platform reach, has not gained the traction Morgan Stanley expected. The analyst said integration into Zscaler’s core Zero Trust Exchange platform is still a work in progress, and the market impact has been underwhelming so far.
Also, the analyst noted that Zscaler operates in the Secure Access Service Edge market, which is a fast-growing but increasingly crowded space that combines network security and wide-area networking into a single cloud-delivered service. As more vendors pile in, pricing pressure intensifies and winning new business becomes more difficult. Morgan Stanley now expects Zscaler’s two main products, ZIA and ZPA, to settle into mid-teens growth rates. This is a substantial step down from the hypergrowth that originally attracted investor enthusiasm, Marshall said.
Zscaler, Inc. (NASDAQ:ZS) is a cloud-based cybersecurity company. It provides zero-trust security solutions designed to protect users, devices, and applications across enterprise networks. Its platform delivers secure internet access, private application access, and threat protection through a fully cloud-native architecture.
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