Zoom Video Q3 Earnings beat expectations
Zoom Video Communications (ZM) fiscal Q3 2021 earnings beat analysts’ expectations in another blowout quarter for the cloud-based video platform whose growth has soared as the result of the coronavirus pandemic. Q3 revenue jumped 367% year-over-year even though investors appeared to be cautious about the company’s continued trajectory while Q4 forecast also beat expectations.
Read more into the earnings, analyst expectations, and what the future holds for Zoom, especially amid positive news around vaccine development.
Zoom has been on a tear throughout 2020 as companies, schools, and average consumers turned to the service to stay connected amid the spread of the coronavirus pandemic, though investors appear to be cautious about the company’s continued trajectory, even as its Q4 forecast beat expectations.
Expectations were high going into the fiscal 2021 third-quarter earnings report for Zoom Video Communications. The cloud-based video platform’s growth has soared as a result of the coronavirus pandemic. The recent earnings mark the third consecutive quarter of triple-digit growth.
- Revenue: Zoom reported revenue of $777 million, up 367% year over year, accelerating from the 355% growth in the second quarter and 169% growth in Q1. This was above analyst estimates of $694 million and the high-end of management’s forecast, which topped out at $690 million.
- Earnings: This quarterly report represents an earnings surprise of 32%, compared to a quarter ago. Non-GAAP earnings per share (EPS) stood at $0.99, an 11-fold increase from $0.09 in the prior-year quarter and easily surpassing both analyst and company expectations, which came in at $0.76 and $0.74, respectively. GAAP EPS of $0.66 sailed past the $0.01 from the year-ago quarter.
- Subscriptions: Customer metrics were equally impressive. Zoom reported a total of 433,700 customers with more than 10 employees, up 485% year over year, while customers contributing $100,000 in trailing-12-month revenue grew to 1,289, up 136%. The net dollar expansion rate – which measures increased spending by existing customers – topped 130% for the tenth consecutive quarter.
- Cash generated by operating activities continued its rapid growth to $411 million, up 565% from just $62 million in the prior-year quarter.
How did the stock move?
Given the stock’s breathtaking run so far this year, it isn’t surprising that investors decided to take some profits, as the stock dipped roughly 5% in after-hours trading Monday, closing at $478.36.
What is the outlook for Zoom?
While Zoom Video has outperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook.
Zoom expects its runaway growth to continue, though at a somewhat more moderate pace. The company is guiding for revenue of between $806 million and $811 million, which would represent year-over-year growth of 146% at the midpoint of its guidance. Zoom expects adjusted EPS of $0.78, a more than eightfold increase.
Zoom Video shares have added about 593.1% since the beginning of the year versus the S&P 500’s gain of 12.6%. At the start of the year, Zoom’s stock price sat at $71.90. But with the wild growth the company has seen amid the pandemic, the stock ended Monday at $478.36.
But there have been signs of trouble. When Pfizer and BioNTech announced that the coronavirus vaccine the companies had been working on proved 90% effective in testing on Nov. 9, Zoom’s stock price plummeted. The company went from trading at $500.11 on Nov. 6 to $376.01 on Nov. 10. The price has modestly recovered since but is still shy of its Oct. 11 closing price of $559.
The earnings report also follows Zoom’s settlement with the FTC following accusations that the company lied about its security capabilities including saying that it offered end-to-end encryption when it never did. The settlement requires Zoom to boost its security capabilities, something the company was already doing following public backlash over vulnerabilities in its default app settings. The firm also announced it began rolling out end-to-end encryption as a technical preview in October.
While there are questions as to Zoom’s long-term growth, the company is well-positioned for the future, even in a post-COVID-19 scenario, as its video conferencing solution has become a critical component of how companies communicate during COVID-19, while the pandemic has also increased the recognition of its long-term importance in the new normal, post-pandemic workplace that will emerge over the coming years.
Should you buy, hold, or sell Zoom stock?
The current consensus among 31 polled investment analysts is to hold stock in Zoom Video Communications Inc. This rating has held steady since November, when it was unchanged from a hold rating, according to CNN Money.
The 26 analysts offering 12-month price forecasts for Zoom Video Communications Inc have a median target of 467.50, with a high estimate of 656.00 and a low estimate of 315.00. The median estimate represents a -2.46% decrease from the last price of 479.28, according to CNN Money.