-- Zscaler (ZS) has shown limited expansion of its platform and its core internet access and private access offerings remain its growth engine, Morgan Stanley said in a Wednesday note.
While Zscaler Digital Experience is seeing early traction with bookings up 80% to $100 million in annual recurring revenue, the company's Red Canary acquisition has shown little momentum, putting all focus on ZIA and ZPA offerings, and challenging the 20% plus growth rate once Red Canary becomes inorganic in fiscal 2027, the investment firm said.
Additionally, Zscaler is seeing the Secure Access Service Edge market become more competitive, with customers evaluating broader platform vendors with deeper networking capabilities, according to the note.
The company remains well-positioned for long-term growth, but a combination of execution complexity, limited meaningful growth drivers and early-stage monetization of new products supports a more balanced risk-reward on the stock, the firm said.
Morgan Stanley downgraded Zscaler to equalweight from overweight, and lowered its price target to $155 from $200.
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