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Zoom Earnings on Monday: Will They Keep the Stock's COVID-Fueled Surge Going?

Zoom Video Communications (NASDAQ: ZM) is slated to report its second quarter results for fiscal 2021 after the market close on Monday, Aug. 31.

Investor expectations are sky-high. Investors have driven shares of the unified-communications platform provider up 43.8% since its first quarter results were released on June 2. The S&P 500 has returned 14.3% over this period. In 2020, Zoom stock is up 340%, while the broader market has returned 10%.

Zoom has been getting a hurricane-force tailwind from the increased number of people working -- along with learning and socializing -- from their homes due to the COVID-19 pandemic. 

Middle-aged man sitting in front of computer screen showing 12 people's faces.

Image source: Zoom Video Communications.

Zoom Video's key numbers

Here are Zoom's results for the year-ago period and Wall Street's estimates to use as benchmarks.

Metric Fiscal Q2 2020 Result Fiscal Q2 2021 Wall Street Consensus Estimate Projected Growth YOY
Revenue $145.8 million $500.5 million 243%
Adjusted earnings per share (EPS) $0.08 $0.45 463%

Data sources: Zoom Video Communications and Yahoo! Finance. YOY = year over year. 

Zoom management guided for revenue between $495 million and $500 million, representing growth of 241% growth year over year at the midpoint. It also expects adjusted EPS to be between $0.44 and $0.46, representing growth of 463% year over year at the midpoint. 

It's interesting that Wall Street is essentially "only" using Zoom's guidance as its estimates. Companies nearly always are conservative in setting guidance, especially companies whose stock prices sport nosebleed valuations. Analysts know this, so often adjust their estimates upward of a company's guidance, or guidance range. (That said, Wall Street did a terrible job last quarter projecting the company's top- and bottom-line results, as we'll get to in a moment, so perhaps this isn't too surprising.) 

It seems highly likely that Zoom will beat the Street's expectations on both the top and bottom lines. If it doesn't, watch out below for its falling stock. 

For context, in the first quarter, Zoom's revenue soared 169% year over year to $328.2 million, crushing the $202.5 million Wall Street consensus estimate. To give you an idea of the COVID benefit, in the prior quarter, revenue rose 78% year over year.

Last quarter's bottom-line results were equally impressive. Net income based on generally accepted accounting principles (GAAP) was $27 million, or $0.09 per share, compared with $0.2 million, or $00.00 per share, in the year-ago quarter. On an adjusted basis, net income came in at $58.3 million, up from $8.9 million in the year-ago period, which translated into earnings per share (EPS) skyrocketing 567% to $0.20. This result demolished the $0.09 analysts had expected.

Indeed, Zoom has zoomed by the Street's earnings estimates in every quarter since its April 2019 initial public offering (IPO).

Guidance, guidance, guidance

Location is of supreme importance in the real estate world. Indeed, the most important factors in a home's value are widely phrased as "location, location, location." 

Analogously, a company's guidance is ultra-important in the world of the stock market. A stock's reaction to a company's release of its financial results will often hinge more on guidance, relative to Wall Street's expectations, than on current results.

So investors will want to know that for the third quarter, analysts are modeling for Zoom to post adjusted EPS of $0.35 on revenue of $492.9 million, representing growth of 289% and 196%, respectively, year over year.  

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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