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Zscaler (Zscaler) Earnings Power Value (EPV) : $-0.03 (As of Jan24)


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What is Zscaler Earnings Power Value (EPV)?

As of Jan24, Zscaler's earnings power value is $-0.03. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is N/A.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


Zscaler Earnings Power Value (EPV) Historical Data

The historical data trend for Zscaler's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

Zscaler Earnings Power Value (EPV) Chart

Zscaler Annual Data
Trend Jul15 Jul16 Jul17 Jul18 Jul19 Jul20 Jul21 Jul22 Jul23
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only - - 1.30 0.36 -0.50

Zscaler Quarterly Data
Apr19 Jul19 Oct19 Jan20 Apr20 Jul20 Oct20 Jan21 Apr21 Jul21 Oct21 Jan22 Apr22 Jul22 Oct22 Jan23 Apr23 Jul23 Oct23 Jan24
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only -0.58 -0.74 -0.50 0.28 -0.03

Competitive Comparison of Zscaler's Earnings Power Value (EPV)

For the Software - Infrastructure subindustry, Zscaler's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


Zscaler's Earnings Power Value (EPV) Distribution in the Software Industry

For the Software industry and Technology sector, Zscaler's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where Zscaler's Earnings Power Value (EPV) falls into.



Zscaler Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

Zscaler's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 1,000
DDA 43
Operating Margin % -22.49
SGA * 25% 185
Tax Rate % -7.15
Maintenance Capex 66
Cash and Cash Equivalents 2,460
Short-Term Debt 45
Long-Term Debt 1,189
Shares Outstanding (Diluted) 149

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = -22.49%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = $1,000 Mil, Average Operating Margin = -22.49%, Average Adjusted SGA = 185,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 1,000 * -22.49% +185 = $-40.20953931 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = -7.15%, and "Normalized" EBIT = $-40.20953931 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = -40.20953931 * ( 1 - -7.15% ) = $-43.084923466058 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 43 * 0.5 * -7.15% = $-1.542778193 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = -43.084923466058 + -1.542778193 = $-44.627701659058 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
Zscaler's Average Maintenance CAPEX = $66 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. Zscaler's current cash and cash equivalent = $2,460 Mil.
Zscaler's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 1,189 + 45 = $1233.69 Mil.
Zscaler's current Shares Outstanding (Diluted Average) = 149 Mil.

Zscaler's Earnings Power Value (EPV) for Jan24 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( -44.627701659058 - 66)/ 9%+2,460-1233.69 )/149
=-0.03

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( -0.032549232003819-174.62 )/-0.032549232003819
= N/A

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


Zscaler  (NAS:ZS) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


Zscaler Earnings Power Value (EPV) Related Terms

Thank you for viewing the detailed overview of Zscaler's Earnings Power Value (EPV) provided by GuruFocus.com. Please click on the following links to see related term pages.


Zscaler (Zscaler) Business Description

Industry
Traded in Other Exchanges
Address
120 Holger Way, San Jose, CA, USA, 95134
Zscaler is a software-as-a-service, or SaaS, firm focusing on providing cloud-native cybersecurity solutions to primarily enterprise customers. Zscaler's offerings can be broadly partitioned into Zscaler Internet Access, which provides secure access to external applications, and Zscaler Private Access, which provides secure access to internal applications. The firm is headquartered in San Jose, California, and went public in 2018.
Executives
Karen Blasing director 4420 ROSEWOOD DRIVE, SUITE 500, PLEASANTON CA 94588
Amit Sinha director, officer: CTO & EVP of Eng/ Cloud Ops C/O ZSCALER INC, 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Brown Andrew William Fraser director C/O GUIDEWIRE SOFTWARE, INC., 970 PARK PL, SUITE 200, SAN MATEO CA 94403
Robert Schlossman officer: Chief Legal Officer C/O ZSCALER, INC., 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Dali Rajic officer: Pres Go-To-Mkt/ Chief Rev Ofcr C/O APPDYNAMICS INC, 303 SECOND STREET NORTH TOWER, SAN FRANCISCO CA 94107
Syam Nair officer: CTO 120 HOLGER WAY, SAN JOSE CA 95134
Jagtar Singh Chaudhry director, 10 percent owner, officer: President, CEO & Chairman C/O ZSCALER, INC., 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Remo Canessa officer: Chief Financial Officer C/O ZSCALER, INC., 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Scott C Darling director C/O ZSCALER INC, 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Charles H Giancarlo director 170 WEST TASMAN DRIVE, SAN JOSE X1 95134
Ajay Mangal 10 percent owner C/O ZSCALER INC, 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
Eileen Naughton director C/O GOOGLE INC., 76 NINTH AVENUE, 4TH FLOOR, NEW YORK NY 10011
Manoj Apte officer: Chief Strategy Officer C/O ZSCALER INC, 110 ROSE ORCHARD WAY, SAN JOSE CA 95134
David Schneider director C/O DATA DOMAIN, INC., 2300 CENTRAL EXPRESSWAY, SANTA CLARA CA 95050
Lane Bess director C/O ZSCALER INC, 110 ROSE ORCHARD WAY, SAN JOSE CA 95134