Bull of the Day: Zoom Video Communications, Inc. (ZM) – April 17, 2020

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Zoom Video (ZM Free Report) shares have skyrocketed in 2020 as millions of people flock to its video conferencing platform amid the coronavirus stay-at-home push. Zoom’s overnight expansion has created some privacy problems, but the stock has bounced back already since the concerns popped up.  

What’s Zoom?

Zoom offers businesses, schools, consumers, and really anyone who has a use for it, the ability to connect via video, voice, chat, and content sharing. The San Jose, California-based firm went public in April 2019 and boasts that its cloud-native platform can connect “thousands of people in a single meeting across disparate devices and locations.”

Even before the coronavirus pandemic forced people around the world to stay at home and work remotely—if they can—Zoom’s offerings were highly attractive in today’s digitally and globally connected society. Zoom allows businesses to cut down on travel costs and to meet with different office locations or remote staff.

ZM’s platform has proliferated during the coronavirus. And companies that find the current remote environment relativity seamless might cut back on rent and commercial real estate expenses by trimming in-office staff or allowing for more flexible stay-at-home schedules when we come out of this current mess.

On top of that, millions of people have started to use Zoom to communicate with family and friends. In fact, “Zooming” or “let’s Zoom” have already become part of the many people’s vocabulary during the pandemic. Clearly, there are no guarantees that once the stay-at-home measures are lifted this will remain the case, but it might encourage more people to connect with people they don’t live near more often.

 

 

 

 

 

 

Recent Results & Expansion

Back on March 4, Zoom wowed Wall Street with its Q4 fiscal 2020 financial results. The firm’s fourth quarter 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.

Zoom also closed the year with roughly 82,000 customers with more than 10 employees, up 61% from a year ago. And these results hardly factor in the coronavirus at all.

In fact, Zoom’s usage has “ballooned overnight,” according to founder and CEO Eric Yuan’s April 1 blog post. He noted that “the maximum number of daily meeting participants, both free and paid, conducted on Zoom was approximately 10 million,” as of the end of December last year. This figure then soared to “more than 200 million daily meeting participants, both free and paid,” in March.

Coronavirus Worries

This surge in users and usage has highlighted security concerns, including what has become known as Zoombombing, where people crash Zoom chats. “We recognize that we have fallen short of the community’s – and our own – privacy and security expectations,” Yuan wrote.

Zoom’s recent issues have brought about some 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.

 

 

 

 

 

 

Other Fundamentals

Zoom is currently working to address its privacy concerns and its stock price has already surged 30% since April 7, after it slipped when its security came under scrutiny.

This recent jump is part of a roughly 120% expansion in 2020, which crushes the S&P 500’s 14% decline and easily tops fellow stay-at-home stocks such as Netflix (NFLX Free Report) and Slack (WORK Free Report) , up 36% and 32%, respectively.

ZM has also blown away fellow 2019 IPO standouts Uber (UBER Free Report) and Lyft (LYFT Free Report) . Despite the climb, Zoom stock closed regular trading Thursday at $150.26 a share, down roughly 9% from its 52-week intraday highs. This could give it more room to run.

Moving on, 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 reach $922.7 million—this would come on top of 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 in FY21 and FY22.

The firm’s earnings revision activity has also popped since it posted its Q4 results, with its first quarter consensus estimate up 67% and its fiscal 2021 figure up 56%. Plus, Zoom has topped our bottom-line estimate by an average of 340% in the trailing three quarters.

 

 

 

 

 

 

Bottom Line

ZM’s strong earnings revisions help it earn a Zacks Rank #1 (Strong Buy) at the moment. Zoom does face competition from giants such as Microsoft (MSFT Free Report) and Verizon (VZ Free Report) reportedly just agreed to buy video conferencing company Blue Jeans Network Inc.

That said, Zoom seems poised to grow as part of our digitally connected world, from business and beyond. And the coronavirus might reshape how people communicate, especially in the near-term. Investors should also note that Zoom’s balance sheet is solid.

ZM’s full fiscal year operating cash flow jumped 196% to $151.9 million. Meanwhile, it closed the year with $855 million in cash, equivalents, and marketable securities, against $334 in current liabilities and $65 million in long-term debt. 

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2020-04-17 09:00:00

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