Bull of the Day: Zoom Video (ZM) – June 9, 2020

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Zoom Video (ZM Free Report) was one of the first star coronavirus lockdown stocks, and its recently-reported quarterly financial results and updated guidance helped propel ZM shares to new highs. Now let’s dive into why the video chat platform’s stock is Tuesday’s Bull of Day.

Video Chat Explosion

Before we recap some of its recent blowout results and look ahead, it’s worth reviewing Zoom’s business and basic pitch to investors.

Zoom offers people the ability to connect via video, voice, chat, and content sharing. The firm, which went public in April 2019, boasts that its cloud-native platform can connect “thousands of people in a single meeting across disparate devices and locations.” This made it the near perfect stock to outperform the market during the coronavirus lockdowns.

ZM’s platform has proliferated during the coronavirus, with businesses, schools, governments, and people all utilizing the video-based communication platform. However, the lockdowns won’t last forever, and people around the world are slowly returning to work and something close to their normal routines.

 

 

 

 

 

 

 

 

 

That said, there is no guarantee that companies, especially in big cities with public transportation, will race back to the office. Plus, firms that find the 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—look at what Twitter (TWTR Free Report) , Facebook (FB Free Report) , and others have already announced.   

Better still, Zoom’s offerings were attractive before the pandemic in today’s digitally and globally connected society. Zoom allows enterprises the chance to connect face-to-face with different locations and remote staff, while also cutting down on travel costs.

Pandemic Quarter Results

Zoom on June 2 reported its Q1 fiscal 2021 results for the three-month period ended April 30. The company’s adjusted earnings soared from $0.03 to $0.20 per share to blow away our Zacks estimate by 100%. And ZM’s revenue skyrocketed 169% to hit $328.2 million, which also destroyed our estimate.

Meanwhile, it closed the quarter with around 265,400 customers with more than 10 employees. This marked a 354% jump from the year-ago period and an over 220% climb from the fourth quarter’s 82,000. Meanwhile, Zoom’s customers contributing more than $100,000 in trailing 12-month revenue climbed 90% to 769.

 

 

 

 

 

 

 

 

 

Outlook

Zoom also raised its guidance following its pandemic-boosted quarter, with it now projecting revenue of between $495 to $500 million in the July quarter. Zoom also nearly doubled its previous fiscal 2021 revenue forecast, with its new range between $1.78 and $1.80 billion, up from $905 to $915 million.

Zoom’s second quarter revenue is projected to climb over 241%, with Q3 expected to jump 150% higher, based on our current Zacks estimates.

Investors can also see how much Zoom’s bottom-line outlook has surged in the last week. The company’s Q2’s consensus estimate is up 282%, with FY21 up 156% and FY22 up 129%. Our Zacks estimates now call for Zoom’s adjusted second quarter earnings to soar 425% from the prior-year quarter to $0.42, with its fiscal 2021 estimate expected to expand 214%.

Bottom Line  

Zoom’s coronavirus-boosted expansion created some privacy worries. But the stock has continued to soar despite the concerns and the company is working to address and fix any security issues. ZM shares hit a new high following its Q1 release of around $224 a share, with the stock up 30% since May 27.

This recent run is part of its massive 2020 climb that has seen Zoom skyrocket roughly 210% and put fellow stay-at-home standouts like Netflix (NFLX Free Report) and Amazon (AMZN Free Report) to shame. Despite the surge, Zoom’s valuation picture has improved recently based on its stellar new outlook.

Zoom is currently a Zacks Rank #1 (Strong Buy) that earns an “A” grade for Momentum and a “B” for Growth in our Style Scores system. Zoom does face competition from giants such as Microsoft (MSFT Free Report) and its 2020 run will be hard to keep up, especially since some investors might start to take home profits soon.

That said, Zoom seems poised to grow as part of our digitally connected world for years to come. And the coronavirus might help accelerate or spark a broader work-from-home push. Investors should also note that Zoom’s free cash flow climbed from $15.3 million in Q1 FY20 to $251.7 million.

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2020-06-09 09:00:00

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