Zoom Video’s ZM popularity has exploded as more businesses and people use its video conferencing platform to connect during the coronavirus-induced push for social distancing. ZM shares have soared nearly 100% in 2020 as investors clamor for stay-at-home stocks.
Simply put, Zoom’s platform allows people to connect via video, voice, chat, and content sharing. The firm, which went public in April of 2019, boasts that it can connect “thousands of people in a single meeting across disparate devices and locations.” Therefore, Zoom’s offerings seem tailor-made for today’s globally-connected world from businesses and beyond.
The San Jose, California-based firm’s Q4 fiscal 2020 financial results wowed Wall Street on March 4. Zoom’s Q4 revenue surged 78%, with fiscal-year sales up 88% to $622.7 million. ZM’s adjusted quarterly earnings of $0.15 a share also destroyed our $0.08 Zacks estimate. In fact, it has blown away our bottom-line estimate by an average of 340% in the trailing three quarters.
Wall Street was also happy to see the firm add larger clients. Zoom closed the year with roughly 82,000 customers with more than 10 employees, up 61% from a year ago.
Coronavirus Growth & Worries
The coronavirus has forced many people to stay at home and businesses to shift to remote working, if possible. This environment has seen millions of people start to use Zoom for both work and school, as well as for chatting with family and friends.
Founder and CEO Eric Yuan wrote in an April 1 blog post that “usage of Zoom has ballooned overnight.” He noted that “as of the end of December last year, the maximum number of daily meeting participants, both free and paid, conducted on Zoom was approximately 10 million.” This figure skyrocketed to “more than 200 million daily meeting participants, both free and paid,” in March.
This surge in user and usage has brought about security concerns, some of which have become known as Zoombombing, where people crash Zoom chats. “We have strived to provide you with uninterrupted service and the same user-friendly experience that has made Zoom the video-conferencing platform of choice for enterprises around the world, while also ensuring platform safety, privacy, and security,” Yuan wrote.
“However, we recognize that we have fallen short of the community’s – and our own – privacy and security expectations. For that, I am deeply sorry, and I want to share what we are doing about it.”
Zoom is currently working to address its privacy and security concerns and noted that its “platform was built primarily for enterprise customers – large institutions with full IT support.”
Meanwhile, the new users are mostly from consumers. The chief executive said that this has helped Zoom “uncover unforeseen issues with our platform… We are looking into each and every one of them and addressing them as expeditiously as we can.”
Zoom’s recent issues have brought about legal scrutiny, including from the New York attorney general’s office. The video-conferencing firm has also been hit with a class action lawsuit by one of its shareholders over its privacy and security issues.
Despite the legal worries, ZM stock is still up nearly 100% in 2020. This includes a 9% jump during regular trading hours on Monday that saw it close at $135.92 a share, as it tries to race back toward its March 23 highs. Investors should also note that Zoom shares have crushed fellow 2019 IPO standouts such as Uber UBER and Lyft LYFT.
Looking ahead, our current Zacks estimates call for ZM’s Q1 sales to jump over 65%, with fiscal 2021 revenue projected to surge another 48% higher to $922.7 million—this would mark a slowdown compared to last year’s 88% top-line expansion.
Zoom’s adjusted Q1 earnings are projected to soar 233% to $0.10 a share. Meanwhile, its full-year EPS figures are projected to jump 20% and 35%, respectively. The nearby chart also shows how strong the company’s earnings revision activity has been since it reported its Q4 results—up 55% for the current year.
Zoom’s earnings revisions have remained positive amid some of the scrutiny. This helps ZM hold a Zacks Rank #1 (Strong Buy) right now. The company looks poised to grow as part of our digitally connected world. And the coronavirus might reshape how people and businesses communicate, especially in the near-term.
Zoom does face competition from Microsoft MSFT and others, and its stock has already been on a wild climb in 2020. That said, investors looking to take a chance on a growth tech stock might consider ZM.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Zoom Video Communications, Inc. (ZM) : Free Stock Analysis Report
Uber Technologies, Inc. (UBER) : Free Stock Analysis Report
Lyft, Inc. (LYFT) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research