Cloud security provider Zscaler (NASDAQ: ZS) recently reported its quarterly performance that outpaced market expectations. The company is focusing on AI as its growth engine and recently announced an acquisition in the space as well.

Zscaler’s Financials

Revenues for the second quarter grew 35% to $525 million, ahead of the market’s forecast of $507.6 million. Non GAAP EPS was $0.76 compared with the Street’s forecast of $0.58.

Among key metrics, calculated billings for the quarter rose 27% to $627.6 million, compared with estimates of $610.5 million. Deferred revenue increased 35% to $1.5 billion.

For the third quarter, Zscaler expects revenue of $534-$536 million and an EPS of $0.64-$0.65. The market was looking for revenues of $532 million and an EPS of $0.58.

Zscaler expects to end the current year with revenues of $2.118-$2.122 billion and an EPS of $2.73-$2.77. The market was expecting revenues of $2.1 billion and an EPS of $2.47.

Zscaler’s AI Focus

Zscaler remains laser focused on AI-based growth. Earlier this year, it announced the release of an industry first, single-vendor SASE solution built utilizing Zscaler Zero Trust AI. The solution aims to help organizations reduce cost and complexity while implementing Zero Trust security across users, devices, and workloads. It also announced the general availability for its Zero Trust SD-WAN solution and portfolio of plug-and-play appliances to help customers modernize secure connectivity for branch offices, factories, and data centers while also eliminating the need for ineffective firewalls and VPNs.

These new Zscaler solutions are built on a Zero Trust architecture that provides secure inbound and outbound connectivity while reducing business Risk and network complexity. Zscaler is leveraging its adaptive AI engine to continuously assess risk for users, devices, destinations, and content, incorporating telemetry from 500 trillion daily signals with third-party risk intelligence to ensure a more secure offering.

Zscaler is also expanding the use of AI into security analytics. Its recently launched Zscaler Business Analytics allows IT leaders to improve employee experience, reduce cyber risk, and optimize SaaS spend and office utilization. The solution offers leaders with access to insights that help them see usage and capacity trending, leverage third party data to improve risk determination, and proactively monitor, manage and resolve incidents.

To continue to drive innovation and growth across its AI capabilities, Zscaler also announced the appointment of two new AI-focused leaders to its organization. It appointed Claudionor Coelho Jr. as Chief AI Officer and Mohamed Shabar as EVP, Data & AI Platforms. Both leaders bring a wealth of experience in cloud, AI and ML spaces and will help Zscaler remain committed to this growing offering.

Zscaler’s $310M Acquisition of Avalor

Besides organic growth, Zscaler is also looking at inorganic growth avenues, and recently announced the $310 million acquisition of Israel-based cybersecurity startup Avalor. Avalor was founded by Raanan Raz and Kfir Tishbi and came out of stealth mode last year. Prior to setting up Avalor, both Raz and Tishbi were leading parts of Dataroma that was acquired by Salesforce in 2018.

Avalor is known for its platform that aggregates and correlates security findings and business context across hundreds of tools, identifying top issues so companies can automatically and easily manage their risk exposure. Its vulnerability management offering uses its patented Data Fabric for Security to provide organizations with tailored insights into a company’s risk posture to manage and mitigate cyber risk. The acquisition will help expand Zscaler’s platform by building on to capabilities that include streamlined reporting of security incidents, incident mitigation, asset discovery, data classification, and security policy generation.

Prior to the acquisition, Avalor was privately held and had raised $30 million in funding rounds from investors including TCV, Salesforce Ventures, Jibe Ventures and Cyberstarts.

The market is pleased with Zscaler and its stock is trading at $194.07 with a market capitalization of $29.1 billion. It hit a 52-week low of $84.93 in May and a 52-week high of $259.61 in February.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.