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Zoom Shares Surge Over 10% On Solid Q4 Earnings, Upbeat Guidance

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Vivek M. Kumar
·4 min read
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San Jose, California-based communications technology company Zoom’s shares rose over 10% in extended trading on Monday after the video conferencing platform provider reported better-than-expected earnings in the fourth quarter and issued a solid outlook for the first quarter.

The company, which provides videotelephony and online chat services through a cloud-based peer-to-peer software platform, reported quarterly revenue of $882.5 million, beating the market expectations of $811.8 million.

On an adjusted basis, Zoom’s earnings per share rose to $1.22 per share, which represents year-over-year growth of over 710% from $0.15 per share seen in the same quarter a year ago. That also beat Wall Street’s estimates of 79 cents per share.

Zoom Video Communications forecast first-quarter revenue in the range of $900 million-$905 million, better than analysts’ expectations of $829.2 million. For the adjusted earnings, Zoom expected to be between $0.95 and $0.97 with approximately 307 million non-GAAP weighted average shares outstanding.

Following this optimism, Zoom shares, which surged over 395% in 2020 and added another 21% so far this year, rose about 10% to $444 in extended trading on Monday.

“I said in our preview to customers that if they can maintain the 2-year revenue growth rate of the last 2 quarters of 451% growth then I care less what their guide is. Well, they did. But add to that they actually gave a strong guide. But I still think there’s a big upside to their guide. The company beat on gross margins too but gave a weak gross margin guide because they are giving away to schools for free during the pandemic,” noted Chaim Siegel, equity analyst at Elazar Advisors.

“I think they are conservative on gross margins too. As a bonus, they have on their website to end free education subscriptions July 31st. If so margins will jump and worst case the hit is short term. The company said apps is their largest opportunity and that’s not even in our model. Wow! For expenses, their opex growth has been running about 35% of revenue growth. So running that through also I get the big upside. Our bull case is 65x 2021 $10.63 = $692 target. That’s on 2021 numbers. In April we start using 2022 numbers. Yikes.”

Zoom Stock Price Forecast

Eleven analysts who offered stock ratings for Zoom in the last three months forecast the average price in 12 months of $488.64 with a high forecast of $610.00 and a low forecast of $375.00.

The average price target represents a 19.28% increase from the last price of $409.66. From those 11 analysts, six rated “Buy”, five rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $420 with a high of $490 under a bull scenario and $270 under the worst-case scenario. The firm gave an “Equal-weight” rating on the communications software company’s stock.

“Uncertainty in what real room looks like, but FY22 virtual backdrop looks beautiful for now. Zoom remains in a leadership position within the large UC opportunity, a dynamic we believed was being lost ahead of the quarter but seems more fully realized post-run up into quarter and after hours. We were encouraged in FQ4 by strong traction with upmarket and positive proof points with Phone, which should help Zoom trade above our base case for now, but questions of churn in 2H keep us more reserved,” said Meta Marshall, equity analyst at Morgan Stanley.

“As previewed, negative investor concerns around heightened SMB customer churn were largely dismissed as churn came in below expectations and the company posted a meaningful beat in the quarter, growing 369% Y/Y. We are encouraged by a strong setup into FY22, a reason we were tactically positive into the print. We could become more positive longer-term were channel commentary around Zoom Phone to improve.”

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $456 from $450. Credit Suisse upped the stock price forecast to $375 from $340. Rosenblatt Securities lowered their target price to $350 from $435.

Analyst Comments

Zoom has established its position as the newly emerged leader in video conferencing, now a growth market, largely credible to the company itself given an introduction of a solution that employees actually use. Company has meaningful competitive moat built on more than just architecture, but a rapid uptick in video usage has attracted significant investment efforts from competitors,” Morgan Stanley’s Marshall added.

“Position within customers makes an attractive opportunity to expand into broader UC market. Early wins encouraging. Environment post-COVID-19 and large-scale WFH, and timing to reach, less certain.”

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This article was originally posted on FX Empire

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