What led to Zscaler Inc (NASDAQ: ZS) stock crash

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Zscaler Inc (NASDAQ: ZS) stock fell over 25% on 11th September, 2019 (as of 11:06 am GMT-4; Source: Google finance) as the company’s earnings outlook came in below Wall Street estimates. Moreover, for the quarter Non-GAAP income from operations was $7.9 million, or 9% of total revenue, as compared to loss from operations of $2.4 million, or 4% of total revenue, in the fourth quarter of fiscal 2018. The ESPP program decreased the free cash flow by approximately $4 million in the quarter. Whereas in the year ago quarter, it had a positive $3 million impact. Further, in FY 19, Billings grew 32% year-over-year to $126 million. Total gross margin was 81%, down 1% sequentially and up 1% year-over-year. The total operating expenses increased 6% sequentially and increased 31% year-over-year to $62.2 million but decreased as a percent of revenue to 72%. The sequential increase in operating expenses is primarily due to increased sales and marketing spend in R&D.

Non-GAAP net income was $9.1 million, compared to net loss of $1.4 million in the fourth quarter of fiscal 2018. ZS ended the quarter with $365 million in cash, cash equivalents and short-term investments. Free cash flow was positive $7.6 million in the quarter compared to a positive $11.9 million for the same quarter a year ago.

ZS in the fourth quarter of FY 19 has reported the adjusted earnings per share of 7 cents, beating the analysts’ estimates for the adjusted earnings per share of a penny, according to Analysts surveyed by FactSet. The company had reported the adjusted revenue growth of 53 percent to $86.1 million in the fourth quarter of FY 19, beating the analysts’ estimates for revenue of $82.8 million. From a geographic perspective, for the quarter, Americas represented 51% of revenue, EMEA was 41% and APJ was 8%.

Zscaler expects adjusted earnings of break-even to a penny a share on revenue of $89 million to $90 million for the fiscal first quarter, and 12 cents to 15 cents a share on revenue of $395 million to $405 million for the year. Analysts surveyed by FactSet expect first-quarter earnings of 2 cents a share on revenue of $87.6 million, and full-year earnings of 19 cents a share on revenue of $398.4 million.

In addition, for the first quarter of fiscal 2020, the company expects Non-GAAP loss from operations to be in the range of $1 million to breakeven. For FY 20, the company expects calculated billings of $490 million to $500 million and Non-GAAP income from operations of $13 million to $18 million

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