Palo Alto Networks, Zscaler shares lead broader cybersecurity selloff

By Emily Bary

Zscaler's stock picked up a downgrade ahead of its earnings report later this week

Cybersecurity stocks are selling off Tuesday as investors prepare for more earnings reports within the industry.

Okta Inc. (OKTA), PagerDuty Inc. (PD) and Zscaler Inc. (ZS) are all due to post results this week, and Rosenblatt analyst Catharine Trebnick weighed in cautiously on the latter Tuesday.

"While feedback from [chief information security officers] and channel partners suggests a solid quarter, concerns have arisen regarding the company's ability to sustain accelerated revenue growth" in fiscal 2025, she wrote. "Based on our assessment, we believe current FY25 consensus billings and revenue estimates may be too high and have adjusted our projections accordingly."

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Trebnick cut her rating on Zscaler shares to neutral from buy, writing of "limited upside potential" in the next six to nine months. That's as the company has seen "attrition" on its sales team and faces competitive pressures on multiple ends, she said.

Zscaler shares are down more than 3% in morning trading, as are shares of Palo Alto Networks Inc. (PANW). Palo Alto Networks shares are among the S&P 500's SPX biggest daily decliners in morning action. The company already reported results for its latest quarter, garnering an initially negative reaction in the session following those earnings as Palo Alto Networks' forecast failed to wow Wall Street.

Other decliners in the cybersecurity sector include shares of Fortinet Inc. (FTNT), off 1.8%, and CrowdStrike Holdings Inc. (CRWD), off 1.9%. The Amplify Cybersecurity exchange-traded fund HACK is off 1.2%.

Piper Sandler analyst Rob Owens also weighed in on the upcoming slate of cybersecurity earnings.

"Broadly, we are looking for some upside to quarterly numbers given modest setups [and] consistent demand backdrops, but expect raises to annual ranges to be minimal given the seasonal start to the year will likely drive some incremental prudence in guidance philosophy," he wrote in a Monday report.

Evercore ISI analyst Kirk Materne, meanwhile, reiterated his upbeat view of Okta's coming earnings report in a recent roundup. "Our positive outlook is driven by favorable sentiment from the channel, encouraging discussions with customers and employees during [recent cybersecurity conference] RSA and numbers that are likely de-risked based on the commentary we have picked up on," he wrote.

Materne rates Okta shares at in-line but opened up a tactical outperform call earlier in May, ahead of the earnings report.

-Emily Bary

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05-28-24 1030ET

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