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Notice Zscaler Stock (ZS)?

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A cloud security provider, Zscaler Inc. (ZS) seems well-positioned to take advantage of a hot-growth sector, as more enterprises embrace the internet as the new network.

Zscaler promises a secure direct-to-internet connectivity founded on a zero trust network access (ZTNA) architecture, to provide fast and secure access to the internet and cloud applications, while eliminating the cost of security appliances, and cutting MPLS costs by 60%.

MPLS or Multi-protocol label switching ensures highly-reliable connections for real-time applications. Being a virtual private network, MPLS is separated from the public internet, thereby immunized against security attacks that may target pure IP-based networks.

However, MPLS is far more expensive than Internet. So, Enterprises have to make trade-offs between the really excellent, but expensive performance of MPLS vs. much cheaper, less reliable internet. This is where an exciting technology called SD-WAN enters the picture.

SD-WAN or Software-Defined Wide Area Network allows an enterprise to utilize multiple, high-bandwidth, inexpensive Internet connections, simultaneously, at a low cost. Zscaler partners with leading SD-WAN providers and delivers the entire security stack as a cloud security service to secure any enterprise's SD-WAN and direct-to-internet connections.

In an analyst presentation in September, Zscaler pointed out the advantages to a customer on switching to its cloud security platform, including 60% saving on MPLS costs, and 70% reduction in infrastructure costs, not to mention the 80% performance acceleration with direct-to-internet connectivity.

Being named by Microsoft as the first and only cloud security provider to be a certified partner in the Microsoft Networking Partner Program (NPP) for Office 365, seems to validate Zscaler's claims of speedy and direct access. The NPP has stringent requirements for user performance, and Microsoft only recommends NPP partners for Office 365 connectivity.

Zscaler also said it earned the FedRAMP Authorized certification - which may be useful, if the company wants to compete for business from Federal agencies. The cloud-security company also noted that it was added to the Department of Homeland Security Continuous Diagnostics and Mitigation Program Approved Products List, which positions it well within the Federal business market.

Q2 & FY20 outlook

For the second quarter, the company sees adjusted eps of 3 cents, on revenue $97 million to $100 million, vs. the consensus estimate of 4 cents and $97.4 million, respectively.

For fiscal 2020, the company sees adjusted eps of 13 cents to 15 cents, on revenues of $405 million to $413 million. Analysts are modeling eps of 15 cents and revenues of $402.9 million.

Jay Chaudhry, Chief Executive Officer, Chairman and Founder of Zscaler, reaffirmed in the company's Q1 earnings call that the focus would be on improving sales execution to take Zscaler beyond $1 billion in revenue.

Shares of Zscaler closed Monday's trade at $52.8, up 3.4% on a strong volume of 4.79 million, vs. average trading volume of 3.35 million. The stock is well-off its 52-week high of $89.54.

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