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Zscaler CEO: ‘The Channel Is Helping Us Get New Logos’

‘When you come to 2,000 to 5,000—or even up to 10,000—users, the channel is beginning to add more and more value,’ says Zscaler founder and CEO Jay Chaudhry.

Zscaler CEO Jay Chaudhry said the channel will play a significant role in driving the company’s growth from $1 billion to $5 billion in annual recurring revenue.

The San Jose, Calif.-based cloud security vendor found the channel is playing more and more of a role in deals with customers with between 2,000 and 10,000 users, according to Chaudhry. Deals with Fortune 500 customers typically require some level of direct touch, but Chaudhry credited the channel with helping make the enterprise—or customers between 2,000 and 6,000 users—Zscaler’s fastest-growing segment.

“When you come to 2,000 to 5,000—or even up to 10,000—users, the channel is beginning to add more and more value,” Chaudhry told investors Tuesday. “The channel is actually helping us get new logos because that’s one of the big values they add.”

[Related: Zscaler CEO: ‘We Are Barely Scratching The Surface Of The Federal Market’]

Channel partners accounted for 94 percent, or $632.4 million, of Zscaler’s revenue in the fiscal year ended July 31, 2021, down slightly on a percentage basis from 96 percent, or $414.9 million, of revenue in fiscal 2020. Zscaler has also broadened its partner base, with the company’s top five channel partners accounting for 34 percent of revenue in fiscal 2021, down from 40 percent the year prior.

As Zscaler pursues $5 billion in annual recurring revenue, CFO Remo Canessa said investments will be made throughout the organization to build on existing strengths and provide a foundation for future growth. On the go-to-market side, Canessa said these investments have spanned the gamut from the sales organization to the channel team to the 2020 hiring of former Aruba Chief Marketing Officer Chris Kozup.

“We’re in a unique position in that we really created in my opinion a revolutionary technology with a platform that was created 12 years ago that really addresses this market pretty much head on,” Canessa said.

Competition in the enterprise segment comes primarily from Cisco Systems and other firewall vendors, and Chaudhry said the company wins against these rivals once it engages. Zscaler’s win rate against firewall vendors is one of the major reasons the company’s enterprise segment has grown so significantly, Chaudhry said. Cisco didn’t immediately respond to a CRN request for comment.

“I do see the security market rapidly changing,” Chaudhry said. “We believe the old segments that we know today will no longer be there. They will disappear over time. And we have a significant lead over others to keep on building more.”

Revenue for Zscaler’s quarter ended Oct. 31 skyrocketed to $230.5 million, up 61.7 percent from $142.6 million a year ago. That crushed Seeking Alpha’s estimate of $212.3 million.

The company’s loss increased to $90.8 million, or $0.65 per diluted share, 65.1 percent worse than the loss of $55 million, or $0.41 per diluted share, recorded a year earlier. On a non-GAAP basis, net income inched ahead to $21 million, or $0.14 per diluted share, up 4.9 percent from $20 million, or $0.14 per diluted share, a year earlier. That beat Seeking Alpha’s non-GAAP earnings projection of $0.12 per share.

Zscaler’s stock jumped $18.03, or 5.20 percent, to $365 per share in after-hours trading. That’s the highest the company’s stock has traded since Nov. 19.

For the quarter ended Jan. 31, Zscaler expects non-GAAP earnings of $0.11 per share on sales of between $240 million and $242 million. Analysts had been expecting non-GAAP earnings of $0.12 per share on sales of $212.3 million, according to Seeking Alpha.

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