2016 IPO Prospects: Zscaler Sets IPO as a Long-Term Goal

A recent report published by MarketsandMarkets estimates the Security-as-a-Service Market to grow from $3.12 billion in 2015 to $8.52 billion by the year 2020 at 22.2% annuallly over the next five years. The research firm expects the healthcare vertical to command the highest share of the market. Growth in the industry will continue to be driven by the increasing adoption of Bring Your Own Device (BYOD) among organizations and the need for organizations to shift from traditional security to advanced security to protect the critical assets from potential threats. San Jose-based Zscaler is looking to make its mark in this high growth market.

ZScaler’s Financials

Serial entrepreneur Jay Chaudhury set up Zscaler with the idea of creating a cloud security company that featured a network of checkposts within data centers so that traffic could get directed to the nearest data center for inspection and security. Zscaler launched its Security-as-a-Service platform to deploy security into the Internet backbone. Today Zscaler has more than 15 million users across 5,000 organizations globally with its customer list including names like GE, Nestlé, ExxonMobil, Schneider Electric, the United States Marines, NATO, and the National Health Services of the UK.

Zscaler keeps its financials confidential. It follows a subscription-based model for revenues. It charges its customers an annual fee based on the level of features used and the number of users protected. According to its management, the revenue growth is strong. For the fourth quarter of fiscal 2015, revenues grew 400% over the year. The company has been cash flow positive for the past three years. Refreshing! Zscaler, unlike others in the Unicorn age, does not believe in propagating a culture that makes it acceptable to report big losses.

Zscaler was initially bootstrapped and subsequently raised venture funding in 2012. It has raised $148 million in funding from investors including EMC, Google Capital, Lightspeed Ventures Partners, and TPG Growth. In September 2015, Zscaler raised $110 million at a valuation of over $1 billion.

ZScaler’s Growing Partnerships

Till last year, Zscaler had been focused on going to market through network providers instead of distributors. Of late that has been changing. The company is now increasing its focus on the development of channel sales and marketing. As organizations continue to allow employees to bring their own devices, there is a bigger need for cyber security and also a presence of inconsistent security across organizations. To manage this better, Zscaler will also be stepping up cyber awareness and threat detection knowledge among partners.

Zscaler has been expanding through multiple partnerships with vendors. The company is now growing its partnership ecosystem to include Cloud Application Security Brokers (CASB) and has entered into agreements with CipherCloud, CloudLock, and Skyhigh Networks. Through the partnerships, Zscaler’s platform will continue to offer cloud-based security by delivering it as a pre-integrated solution to provide visibility, control, and protection for cloud services.

Analysts believe that Zscaler may be ready to go public soon, but the company has a different opinion. It is confident that it will go public when the timing is right. For now, it is enjoying the biggest advantage of remaining private–the ability to focus on a long-term vision and not have to worry about short-term quarterly reports. There are also a few in the market who believe that Zscaler could be a potential target for the likes of Cisco which is looking to up its security services offering.

This segment is a part in the series : 2016 IPO Prospects