Zscaler CEO Jay Chaudhry Talk Earnings, AI Trade

Bloomberg Audio Studios, podcasts, radio News. Hey, we are also watching shares of z Scaler. They're getting smacked down a bit today, down about thirteen percent, hitting a fifty two week low. Now down about thirty six percent year to date. Stock is down more than sixty percent since November of twenty twenty one.

Industry selling shares. After the security software company second quarter results they beat estimates, they weren't, though strong, seen as strong enough to reverse recent negative sentiment toward software companies. It comes on top of a tough week for company shares. Stock tumble ten percent on Monday on the AI scare worries again Carol over the impact of aion companies and

Yeah, it's been a crazy week for z Scaler, no doubt about that. We should point out a bunch of analysts weighing in on the company's earnings and lowering their price target on the stock. But let's get into the business, the outlook and more. Delighted to have back with us. Jay Chowdry, He's founder, chairman, and CEO of z Scaler

So AI is a massive opportunity because what AI is doing is bringing lots of AI agents in the enterprise. Agents are some alike people. It traditionally uses us having the weakest link for cybersecurity. Now AI agents are becoming the weakest thing. How do you secure them? Well, you need to make sure that you can do one to one connection. That means an agent can only access certain

So go ahead, made I.

Mean, Jay, I think the street obviously didn't like the billing's number in your print, and that was seen as you know, moderating like was that attributed primarily because of seat growth slowing down? And we keep hearing, you know, layoffs like the one that's square announced yesterday, or was there anything more to the billing's number last night?

So billings is a secondary number for US. The number one area of focus for is ARR growth and revenue growth. Our revenue group twenty six percent EU over ear ARR twenty five percent, free cash flow eighteen percent, opening margin twenty two percent.

They're all great numbers.

Now, we have a z flex program that gives some flexibility in billings, so billings can get impacted. But with z Flex, customers are doing multi year, four or five year deals with US committing to z Scaler, which is a very strong sign. So I don't think the billing should be viewed in a negative light.

Overalth business is very strong, Jay.

I want to go back to what you said about AI and protecting these AI agents and just how you're thinking about that, because I think a lot of people are trying not just to understand the impact of AI on cybersecurity, but the impact of AI in a company like yours when it comes to operations. So from an operations perspective, with the context of what we saw from Block late yesterday, the company relying more on AI and less on actual human beings.

How are you.

Using AI at the company operationally to increase your margins, to make your employees more productive.

Or get rid of employees.

Nobody's going to answer.

That everyone should and need to use AI. We use AI to make sure we can deliver better customer support to our employees.

The AI agent's not helping us.

We are increasing in productivity of our engineering tea use by using all this stuff. But I think the numbers that block share they seem way out of line that anyone else is saying out there. We are seeing some reduction in hiding additional hiding, But I do think that in some of these critical areas you need people. I am hiring more developers for AI development, for example.

And for us.

Many times customers think that as the number of employees may not grow, that means it impacts our user based pricing. The user base may slow down from growth point of view. But we are actually securing all the agenttic traffic, all the agents when we have millions of users will have billions of agents to secure. That provides an opportunity for us to secure the enterprises and monetize it.

Maybe Jay, I want to go to a different topic around sovereigns because we've been hearing more and more that you know, every sovereign wants to build their own AI. How does that impact a company like yours that operates globally, Given you know sovereigns are more keen to deploy this on prem does that impact a cloud security company like yours?

Actually, sovereign clouds is a positive development an opportunity for us. We build ZS colar architecture where the data that we store, which is essentially metadata and logs, can stay in that country. We have had a cloud that's built for EU and is EU with data in EU for.

A long time now.

Many of the large countries also want to operate the cloud in that country as well. We're working with many large countries to really provide them a sovereign security cloud that will access the data wherever the data is.

So the two aspects.

There may be AI model setting in India or France or Germany, but our sovereign security cloud will make sure they can access the model where it's sovereign or non sovereign. So overall it's a positive thing for us. It's our architecture that allows us to build sovereign security clouds.

Yeah, and look, I mean Amazon today announced this fifty billion dollar investment in open ai. Google we know they've flows their acquisition of wiz. So how do you see, you know, the hyperscalers playing in this space where they obviously are deploying the models on their cloud, they are bundling security. Is that going to have some sort of an impact in terms of the AI security aspect that you alluded to, not directly on providers like z Skiller.

Look, Hyperscalers, the cloud providers have been building applications and people said, oh, can they take over security market? We haven't seen any of that. It is true that AI model builders will provide some of the applications such as perhaps testing and right teaming, But when it comes to being the zero trust exchange that make sure that agents created by Microsoft, Open a Athroffick or whoever can securely access the right applications, they.

Look for someone like z Scaler.

We become the Switzerland that connects the right party to right party, just like we've built such a strong business for securing users in spite of all these other vendors out there. The more models they create, the more application they create. The more agents that get built, the more opportunity z scaler has.

Does that mean the hyperscalers you're getting bigger orders from them? I'm just curious, where are you getting business and is it the hyperscalers?

Is it?

Yeah, we are getting business from enterprises because enterprises need to secure access to applications no matter where they are are, so applications become destination.

For us.

We are the switchboard providing zero trust access the market. We pioneered and we are way ahead of anyone else. The rest of the market is doing firewalls and VPNs and we are probably the only real credible choice for enterprises and that has That's what a caven Us business. Over forty five percent of fortune fire on companies upon us today.

How are these enterprises measuring the efficacy of your product versus you know, whatever is coming bundled with the hyperscale solutions, Like, what is it that is really making them go with z scaler in terms of the efficacy aspect?

Specifically, so z skiller is not a piece of code that you bundle with the hypersciller goes out there. Z scaler is a globally distributed infrastructure setting in one hundred and sixty locations around the globe. So any traffic from an enterprise that needs that, maybe from users that may be from cloud work clothes, that may be from AI agents, it needs to access certain application services, and we become the switchboard the policy enforcement for that. Their traffic go

That's a problem. That's what we secure.

You mentioned Anthropic and fresh in our minds is what's happening between the US government, the Department of Defense and Anthropic right now. We're going to be covering that in our four o'clock hour today. But on the government, is the US government actually buying more of your services right now? Are our deals happening? Are they getting delayed? How would you characterize that?

So Fredle is a strong market segment for US. Last year it went through some changes, but it back on track. We have strong pipeline, we have strong business in the federal government. Thirteen of the fourteen cabinet level agencies use z Scaler to secure themselves.

So just to recap thirty seconds. AI not a threat to your business. I mean software is.

An opportunity for our business, not a threat, not a threat at all, and securing agentic technology is the number one thing CIOs want to make sure they can do it. That's holding them back from larger rollout and we become enablers of it.

Well, we always appreciate getting time with you, Jay, thank you, thank you so much on what was it now? A busy week Jay Chowdry there, founder, chairman and CEO of z Scaler, have a good weekend, along with of course our own Mandeep saying Bloomberg Intelligence, Global Head of Technology