Company / Analytics

Analytics, 03 March 2021

Zoom earnings and Prospects

Zoom Video shares rallied as much as 11% in extended trading on Monday after the company reported Q4 earnings and guidance that topped analyst expectations. However, the rally evaporated on Tuesday as analysts digested Zoom’s fiscal 2022 guidance and announcements from Microsoft which owns one of Zoom’s rival software – Microsoft Teams. Shares continued to fall early Wednesday as markets opened.

Riding on the Pandemic

Zoom continues to ride on the pandemic-induced work from home measures. Undeniably, Zoom has had a stand-out season since the beginning of the pandemic which has made its name synonymous with video-conferencing and a seat among preferred virtual working tools, helping individuals, groups, and workplaces to stay connected. Indeed, Zoom is now the leader in modern enterprise video communications.

The company once again delivered earnings that beat analyst expectations. In the latest fourth-quarter report, the company reported earnings of $1.22 per share against analyst expectations of 79 cents while revenue reached $882.5 million, above analyst expectations of $811.8 million.

Revenue grew 369% year over year in the quarter that ended on Jan. 31, according to a statement released by the company. In the previous quarter, revenue had grown some 367%.

Zoom expanded its gross margin to 69.7% from 66.7% in the prior quarter. This was primarily connected to seasonal audio usage that declines during the holiday, finance chief Kelly Steckelberg said on a Zoom call with analysts.

While the company lost fewer customers than executives had expected, churn rates remain higher than they were before the pandemic, and Zoom expects higher churn rates to persist as people start to travel more.

The company posted gains among small customers. Zoom reported having 467,100 customers with more than 10 employees at the end of the fiscal at the end of the quarter, up 470% on an annualized basis, compared with 354% growth in the previous quarter.

Zoom ended the quarter with $4.24 billion in cash, cash equivalents, and marketable securities, up from $1.87 billion in the previous quarter.

There’s speculation it could make a big acquisition, most likely in the business communications market. Indeed, the company is open to buying companies while it has more cash, but “just haven’t quite found the right match yet”, according to Steckelberg.

Zoom also said it had accumulated more than 1 million seats paying for Zoom Phone, a service that allows people to virtually make and receive phone calls, route calls, and accept voice mail.

Fiscal 2022 Guidance, Outlook, and Expectations

Zoom stock soared in 2020 as consumer and business usage surged amid the coronavirus crisis and stay-at-home directives. But Zoom stock will contend with tough year-over-year comparisons as more employees return to office work.

For the current quarter ending in April 2021, Zoom forecast revenue of $902.5 million vs. analyst estimates of $830 million. Zoom said it expects an adjusted profit of 96 cents at the midpoint of its guidance vs. estimates of 72 cents.

For the full 2022 fiscal year, Zoom called for adjusted earnings of $3.59 to $3.65 per share and $3.76 billion to $3.78 billion in revenue, which would represent 42% growth. Analysts polled by Refinitiv had been looking for $2.96 in adjusted earnings per share and $3.56 billion in revenue.

How did Zoom stock move?

The stock was down 3.7%, trading at $359.04 at the time of writing on Wednesday morning. Zoom shares were down on Tuesday from an all-time intra-day high of $588.84 on Oct. 19. Shares initially jumped 7.4% to 440 in early trading on Tuesday but tumbled 9% to close at 372.79.

Shares tumbled following news that Microsoft teams - one of Zoom’s main rivals in the business market – unveiled new collaboration features for the video app. Microsoft also debuted Mesh, a new cloud mixed-reality platform, at the developer conference. The stock is also retreating amid positive vaccine news and a lofty valuation.

Excluding the after-hours move Tuesday, Zoom stock price has risen 22% since the start of the year, while the S&P 500 is up less than 4% over the same period.

Should buy Zoom shares?

The current consensus among 28 polled investment analysts is to hold stock in Zoom Video Communications Inc. The 22 analysts offering 12-month forecasts for Zoom Video stock price have a median target of 488.00, with a high estimate of 610.00 and a low estimate of 375.00. The median estimate represents a +34.88% increase from the last price of 361.80, according to CNN Business.

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