Zscaler is the IBD Stock Of The Day as the cloud cybersecurity provider nears a buy point. Zscaler stock has gained more than 180% since its initial public offering in March 2018.
The cloud cybersecurity provider has built a first-stage, cup-with-handle base and is nearing a 45.97 entry point. Shares in Zscaler were up 1.6% to 45.56 on the stock market today. Zscaler has a relative strength of 97 out of a possible 99. The relative strength line tracks a stock’s performance vs. the S&P 500 index, with a rising line pointing to outperformance.
Institutional ownership also is a bright spot. In the latest period, 116 institutional investors opened new positions, 155 added shares and only 85 reduced positions.
The Zscaler stock IPO in March raised $192 million, with shares priced at 16. Shares in the cybersecurity firm rallied through late August, then formed a cup chart pattern over four months. Zscaler stock has rebounded since the early December sell-off in technology companies.
The cybersecurity firm reported revenue growth that topped estimates in its first three quarters as a public company. In the three months that ended Oct. 31, Zscaler reported earnings of a penny per share, marking its first profitable quarter on an adjusted basis. Revenue popped 59% to $63.3 million.
Cloud security provider Zscaler aims to capitalize on a big shift in the enterprise software market as companies acquire Microsoft‘s (MSFT) Office 365 and other tools in the cloud. Rather than buy software licenses for on-premise data centers, large companies are purchasing subscriptions to software accessed remotely over the internet.
Why SD-WAN Requires Cloud Security
Many companies, meanwhile, plan to switch to a new computer networking technology that saves oodles of money. Called software-defined wide area networking, or SD-WAN, the technology often taps bandwidth on the public internet.
With SD-WAN, companies have less need for costly private data networks leased from telecom companies. If employees are located in branch offices or work remotely, they can access software apps using lower-priced broadband connections.
Problem is, along with the savings from SD-WAN comes an increased security risk from data going over the public internet.
Andrew Nowinski, analyst at PiperJaffray, says SD-WAN will create demand for Zscaler products.
“While SD-WAN can improve network performance and reduce network connection costs, it creates a security risk, since the company’s security appliances in the data center would be bypassed,” he said in a report. “Putting Zscaler in the traffic path prior to reaching the cloud-based application eliminates this risk and therefore is very complementary to the deployment of SD-WAN.”
Zscaler Competes With Symantec, Forcepoint, Cisco
SD-WAN has given Zscaler an opening in what’s called the web security gateway market.
When companies use private telecom networks, web security gateways enforce rules on what workers can access and inspect data traffic for malware. Symantec (SYMC), which bought Blue Coat, Forcepoint and Cisco Systems (CSCO) have been the biggest sellers of web security gateways installed in private data centers.
Zscaler’s cloud platform, though, gives companies another option. That’s routing data traffic to the external data centers where Zscaler houses its hardware and software cybersecurity tools. San Jose, Calif.-based Zscaler has installed cybersecurity tools in 100 data centers worldwide.
Market research firm IHS estimates that the SD-WAN appliance and software market will top $3.5 billion in 2022, up from $1.2 billion in 2018.
San Jose, Calif-based Zscaler is the biggest provider of cloud-based web security gateways. It’s No. 4 overall in the web security gateway market, says market researcher IDC.
The company garners most revenue from Zscaler Internet Access, its cloud-based replacement for on-premise web security gateways. In August, Zscaler acquired TrustPath, a startup developing artificial intelligence-based analytical tools, to boost its threat detection capabilities.
Expanding beyond the web security gateway market, the company rolled out Zscaler Private Access. The new product accounts for about 10% of Zscaler’s new customer contracts. Zscaler Private Access targets business workloads deployed at cloud computing service providers, such as Amazon Web Services, part of Amazon.com (AMZN) or Microsoft’s Azure service.
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