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'Bond King' Jeffrey Gundlach says a recession will strike in the next 4 months
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View above about Model Issue: Length in quarters for next tightening phase in the US
With all that's going on I think a recession is probably within four months at the most. In all the past recessions going back for decades, the yield curve starts de-inverting a few months before recession comes. At this point, with the de-inversion happening, the 4-6 month time window is starting to seem much more plausible.
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Management argues that the mission-critical nature of security makes customers relatively price insensitive even w. current budget pressure
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View above about Model Issue: Odds that Zscaler offers a Material improvement over alternatives for User protection for companies > 2K employees
Our customers are negotiating order over payment and deal terms. But customers do view us as one of the most mission-critical service, and they want to make sure they buy the service that works, the service they can depend upon. But they're not looking for the cheapest solution. So from that point of view, I would say we aren't seeing tremendous pressure on discounting.
We're seeing some focus on it. And to help that, that's where some of the ramp deals come in to help lower the first year cost for the customer to manage their spend. But being strategic, being dealing at the right level and actually delivering a lot of ROI value reduces pressure on us from a pricing point of view.
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Zscaler expects "high single digit percent of revenue" on capex, so 43% expected revenue grow suggests mid-double digit on incremental rev
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View above about Model Issue: Start amount and org Zscaler, Inc. and for issue Growth capex pct of incremental sales
We continue to expect data center CapEx to be around the high single-digit percentage of revenue for the full year . . . For the full year fiscal 2023, we expect revenue in the range of $1.558 billion to $1.563 billion or year-over-year growth of approximately 43% . . .
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Management gave examples of why ASP / workload is increasing as more customers are buying multiple Zscaler products for workloads
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View above about Model Issue: Peak monthly revenue per user / workload if Zscaler offers a Radical improvement over alternatives for Workload protection in top public clouds
In addition, we are gaining traction with workload protection powered by the same core ZIA and ZPA technology. Thanks to new and existing customers purchasing these expanded bundles, we drove a 51% year-over-year growth in the number of customers with greater than $1 million in ARR, ending with nearly 380 of these customers.
And over 30 of these customers have ARR greater than $5 million. Let me highlight 3 deals this quarter. where the customers purchased all 4 product pillars. In a new logo win, a top 10 global IT software and services company purchased Zscaler for Users bundle for 400,000 users, including our advanced data protection suite and our Zero Trust for Workloads for 3,000 workloads.
This customer pursued a zero trust strategy due to their business growth, resulting in a complex application and network environment and heightened risk from data sprawl. They selected Zscaler as the only scalable zero trust platform that reduces their attack surface and protects their sensitive data while bringing agility to their business.
With our integrated platform, they will simplify their security operations by consolidating dozens of point products, including firewalls, VPN, VDIs, DLP and CASB. By purchasing all 4 product pillars, the customer is making a platform bet on Zscaler to secure their users, workloads and devices regardless of their location.
Next, in an exciting upsell win, a major auto manufacturer upgraded to Zscaler for Users bundle for 35,000 users and purchased Zero Trust for Workloads for 8,000 workloads. This platform purchase was driven by the customer strategy to digitally transform their business operations, including management of the vast supply chain. In fact, we are helping them accelerate time to market for new EVs.
Before purchasing ZPA, this customer experienced significant delays in commissioning new vehicles as third parties did not have fast and secure remote access for collaboration. By using ZPA and ZDX, they can provision secure access to new third parties within a few days compared to over a month, it used to take with legacy remote access technology.
In addition, Zscaler for Users significantly reduces the risk of ransomware that the firewalls and VPNs allow. Finally, a Global 500 pharmaceutical company upgraded from ZIA for 45,000 users to Zscaler for Users bundle for 85,000 users and purchased Zero Trust for Workloads for 2,000 workloads.
They purchased all 4 product pillars to pursue a cloud-first strategy with zero trust security for all users and workloads. With this upsell, the annual spend of this existing $1 million customer increased by 6x with additional opportunity for workload protection as the public cloud usage grows.
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Zscaler describes why some customers are buying higher-price bundles of multiple products
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View above about Model Issue: Peak monthly revenue per user for Zscaler User protection for companies > 2K employees if it offers a Radical improvement over alternatives
Our AI/ML capabilities are driving customer success at scale in the real world today. Let me share an example with you. In December, we helped a Global 500 conglomerate, experiencing a targeted cyber attack on one of its divisions. Our ThreatLabZ team worked closely with the customer to identify the root cause of the attack and acted quickly to prevent any potential damage.
Subsequently, this customer upgraded to our ZIA Transformation Bundle to prevent 0-day attacks and secure the entire ecosystem. This win highlights the value of our high-end product bundles and the benefits that our ThreatLabZ research brings to our customers.
I'm delighted to share that an increasing number of customers are purchasing our comprehensive platform capabilities, which not only accelerates their business value realization but also establishes us as a critical partner for their success. As I mentioned before, customers are increasingly buying Zscaler for Users, our complete platform for user protection, which includes ZIA, ZPA and ZDX bundled together.
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In the quarter ended 1/2023, Zscaler had NRR > 125% & NPS > 80, more than double the SaaS avg, suggesting a dominance for current customers
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View above about Model Issue: Odds that Zscaler offers a Radical improvement over alternatives for User protection for companies > 2K employees
We had strong growth in our expansion business with existing customers, increasing their deployments and adopting our broader platform. Once again, our dollar-based net retention rate was over 125%. We continue to delight our customers by accelerating their path to better security, business agility and cost elimination, helping them solve some of their highest priorities. This drove our Net Promoter Score, or NPS, to a new high. Our NPS now exceeds 80, which is more than 2x the average for SaaS companies. And today, more enterprises than ever before, recognize Zscaler as the best choice to secure their digital transformation, strengthening my confidence in our $72 billion serviceable market opportunity
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Analysts' "pro forma" EPS estimates reflect $0.77 / quarter of expense add-backs, as pictured in the earnings release
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View above about Model Issue: Pro forma adjustments and org Zscaler, Inc. and for quarter ending 12/31/2022
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HIMS days payable was ~17 days in Q4 2022
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View above about Model Issue: HIMS Payables days of expenses
$32.4M accounts payable divided by ~$35M cogs and 144M total opex minus 2.6M capex times 90 days is ~17 days
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Q4 2022 Inventory days of COGS was ~57 days
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View above about Model Issue: HIMS Inventory days of COGS
Average inventory of $22M divided by COGS of $34.9M times 90 days is ~57 days of inventory.
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HIMS' ARPU / month was ~$55 in Q4 2022
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My most recent estimate of $250 CAC as of 4Q22 implies a ~9% monthly churn or an ~11-month lifetime
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HIMS' CFO at Citi's Healthcare Conference confirmed CAC payback period is still ~6-7 months
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View above about Model Issue: Current CAC / new sub in Core Male
So 2019, the payback period was over a year. We actively did a ton of execution and activities to bring that down over time. We saw in 2021 that that came down to less than a year, roughly 6 months. As we look at the early 2022 cohorts that are now hitting a year, those have also had a payback period roughly in the month -- the 6 to 7 month time frame. And so I think that we increasingly just see very strong strength across the customer cohorts that really is just a testament to how customers value our platform.
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I think CAC and churn could both be ticking up as HIMS penetrates subs beyond the early adopters. CAC may be ~$250 now.
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View above about Model Issue: Current CAC / new sub in Core Male
It's been a while since management commented on CAC and monthly churn. The last earnings call where they called it out directly is 1Q21. On the Q4 22 call, they said they will always maintain a CAC payback of <1 year. In more recent earnings calls since the 1Q21 call, they've said payback has been <6 months. Back of the envelope, assume 6-month payback x $55 rev/sub/month x 75-80% gross margin gets you ~$250 CAC. Q4 22 total CAC spend was ~$73M, so assuming $250 CAC implies ~9% monthly churn. ~9% is higher than the "msd" monthly churn comments management made in the past, but it's likely as they're growing beyond their early adopters and scaling into new populations that are willing to try the service with less brand loyalty.
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