Zscaler Lays Off Workers to Focus on Profitability

After doubling the size of its workforce over the past 18 months, cloud security vendor Zscaler announced layoffs after what it called a rough fiscal second quarter. The San Jose, California-based cloud security vendor on Thursday said it would lay off 3% of its 5,900 employees—about 177 workers—to adapt to a more challenging business environment and focus on expanding its profitability, according to CFO Remo Canessa. The company cited "increased deliberation from new customers around large purchasing decisions in January 2023 led to reduced billings growth."

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CEO Jay Chaudhry said, "The macro conditions are impacting the higher-end, large deals. New logos with large deals are more challenging as there is additional scrutiny and additional approvals needed." Despite these challenges, Zscaler's billings did grow by 34% in the fiscal year ended January 31.

"We are adapting to the changes we saw in Q2 ," Canessa told investors during an earnings conference call Thursday, March 2, 2023. "This is a targeted optimization initiative to address inefficiencies in certain job functions and projects."

Zscaler said it plans to moderate its hiring for the next several months, with a focus on investing in selling capacity and research and development, according to Canessa. Founder, chairman and CEO Jay Chaudhry said despite the layoffs, the company still plans strategic hiring throughout the rest of this year, including quota-carrying sales reps and core engineering team members. Chaudhry said streamlining operations will better align people, roles and projects to Zscaler's strategic priorities and that Zscaler's year-end headcount will be higher than current levels.

"We will continue to hire the best candidates in high-priority areas," Canessa said. Zscaler expects its global workforce reduction to be substantially complete by the end of July, but Canessa hinted at the possibility of more layoffs later in the year.

"The recurring nature of our business model gives us good visibility on top-line revenue and allows us to adapt quickly to changes in market conditions to deliver on our operating profit and margin goals," Canessa said. "If the environment becomes more challenging, we will continue to prioritize profitability, leveraging our strong unit economics and driving efficiencies in our cost structure."

Layoffs looming didn't stop Zscaler from pursuing inorganic opportunities through acquisition. In mid-February, the firm purchased Tel Aviv, Israel-based Canonic Security to help customers streamline SaaS application governance and enforcement and in September, 2022, bought workflow automation startup ShiftRight for $25.6 million to provide customers with real-time visibility into their security posture.

When it comes to layoffs, Zscaler is not alone. Oxford, U.K.-based platform security vendor Sophos in January laid off 10% of its staff, or 450 workers. In February, San Francisco-based identity security giant Okta axed 5% of its workers - or roughly 300 employees - while Atlanta-based cybersecurity services vendor Secureworks cut 9% of its staff, or approximately 210 positions, according to BankInfoSecurity.