Zscaler Reports $125M in 2017 and Files for IPO

Zscaler, a San Jose-headquartered global cloud-based information security firm, reported a revenue of $126M in the 2017 fiscal year and $84M in the six months leading up to January 31, 2018, representing a year-over-year growth of 51%. Last week, the company filed for an IPO worth $100M. However, this amount is likely a placeholder used to assess fees.

Last October, TechCrunch reported that Zscaler had confidentially filed for a security IPO and was originally planning to go public by year-end of 2017, and had previously raised capital at a $1B valuation. Investors include Lightspeed Venture Partners, Alphabet’s Capital G and TPG Growth.

Morgan Stanley is managing the IPO. Crunchbase predicts that it will be in the realm of nine-figures, although admits “we won’t know more until it drops a price range”.

Cloud security is a fast-growing field. From looking at its SEC report, it’s apparent that the company became incorporated in 2007 during the early stages of cloud adoption “based on a vision that the Internet would become the new corporate network as the cloud becomes the new data center”. They integrated security as a service (SaaS) in the cloud into their offerings from the start, putting Zscaler ahead of the curve in terms of cloud security.

Zscaler has over 100 data centers worldwide with over 1,000 PoP and users in over 185 countries. They claim to block over 100 million threats and perform over 120,000 unique security updates on a daily basis. When a new threat is identified, it can block that threat for users across its entire customer base within minutes. It is unusual for a Software as a Service company in having begun its life serving the top end of the market, and is now growing downward – most SaaS companies begin at the mid-market level and grow upward. The company’s largest client is the National Health Services (NHS) in the U.K., with 1.6 million employees protected by ZScaler. This is apparently the largest SaaS deployment in the world. Other large clients include Unilever, Philips, General Electric, ABC, the United States Marines and NATO.

As cloud security systems are still under development, there are few large competitors. However, its most significant rival, Symantec is suing Zscaler. In December 2016, CRN reported on a patent infringement lawsuit that Symantec was filing against Zscaler, alleging that the cloud security vendor violated seven of its patents in portfolio. The claims center around Symantec’s patents in the areas of web security, DLP, threat prevention, access control and antivirus. Other similar lawsuits have also been filed, including by tech security company Finjan.

In the SEC report, Zscaler says the Symantec lawsuit is a classic case of an established company becoming the target of smaller companies in a lawsuit. They state, “as we face increasing competition and gain an increasingly higher profile, including as a result of becoming a public company, the possibility of intellectual property rights claims against us grows”. Zscaler says given the early nature of these lawsuits, it is not in the position to predict the likelihood of success or otherwise. The company stresses, however, that the success of its business “depends in part on our ability to protect and enforce our intellectual property rights”, and says it is “vigorously defending ourselves against these claims”.

More detail on the IPO and Zscaler’s business operations will be made clear during its roadshow, including how much it intends to raise.

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