Video collaboration platform provider Zoom Video (ZM) is set to report second quarter fiscal 2021 earnings results after the closing bell Monday. Zoom shares have underperformed considerably over the past six months, falling almost 10% compared to the 17% rise in the S&P 500 index.
However, since falling to a low of $273 in May, the stock has risen as much as 47% to a recent high of $404 earlier this month. It would seem the market can’t make up its mind about the company’s post-pandemic profitability goals. With coronavirus vaccine distribution accelerating, the market has grown concerned about Zoom’s ability to maintain its impressive growth rate as schools, universities and corporations reopen for in-person work and learn. The company, however, has begun to diversify its revenue stream.
Aside from entering the contact center space, Zoom has also launched its Events platform for virtual and hybrid events which enables event organizers to charge admission fees by creating ticketed live events. For this reason, among others, Morgan Stanley analysts led by Meta Marshall recently upgraded the stock to Overweight from Equal-weight, boosting the price target to $400 from $360. Marshall noted investor concerns on small-and-medium-sized business turnover "are outweighing continuing growth potential of enterprise business, particularly as platform expands." Nevertheless, Zoom will need a beat-and-raise quarter and strong guidance to reach $400 from its current level.
For the three months that ended July, Wall Street expects the San Jose, Calif.-based company to earn $1.16 per share on revenue of $990.96 million. This compares to the year-ago quarter when earnings came to 92 cents per share on revenue of $663.52 million. For the full year, ending January, earnings are projected to rise 40% year over year to $4.67 per share, while full-year revenue of $4.01 billion will rise 51% year over year.
The decline in the stock since reaching its all-time high of $588 has been due to the company’s decelerating revenue growth rate. With 2020 fiscal year profits soaring more-than 700%, Zoom has been a victim of its own success. The market is now focussing on the tough comparisons the company must overcome in the quarters ahead. The company’s valuation is also a concern for investors as competing products from Microsoft’s (MSFT) Teams and Cisco’s (CSCO) WebEx are adding features that made Zoom the go-to video collaboration platform at the height of the pandemic.
That skepticism was evident in the first quarter as Zoom shares were punished despite the company beating on revenue and profits and lifting full-year guidance. First quarter revenues soared 191.39% year over year to $956.24 million. Zoom also reported Q1 adjusted EPS of $1.32 per share which beat Street estimates by 34 cents. During the quarter, customers with more than 10 employees increased 87% to 497,000, beating the 485,280 estimate.
Just as impressive, the number of customers contributing more than $100,000 in trailing twelve moths revenue surged 160% year over year. This is impressive particularly given the increased competition Zoom endured from if aforementioned larger rivals. Ending the quarter with $4.7 billion in cash and cash equivalents, Zoom also raised its full-year guidance, suggesting its sees no signs of slowing down. If Zoom can match these metrics on Monday and raise its full-year outlook the stock is poised to regain $400.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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