Over one year ago, as the COVID-19 pandemic gripped the world, one company seemed to emerge immediately from the darkness and was soon catapulted onto nearly everyone’s computer screens. Zoom Video Communications Inc. (ZM) became a household name almost instantaneously in Q2 FY2020, but now, with the pandemic subsiding in developed countries, can the video conferencing application continue to woo its investors?
Matthew Niknam of Deutsche Bank published a report in anticipation of Zoom’s earnings release, which is expected after market hours on Tuesday, June 1, 2021. Niknam concluded on a Hold rating and a price target of $360 which reflects upside potential of 8.59% from Friday’s closing share price of $331.53. (See ZM stock analysis on TipRanks)
Niknam explained that after the phenomenal growth Zoom experienced year-over-year, the company must adapt to the post-COVID world. The anniversary for many businesses’ one-year subscriptions will be approaching their renewal cycle point. As restrictions from forced pandemic-led lockdowns continue to ease, some businesses will maintain a hybrid work-from-home schedule structure, and others may not.
Niknam was confident that larger businesses will stick with the conferencing software packages, and Zoom must capitalize on them by increasing upmarket engagement. The publicly-traded company has recently announced Zoom Events, wherein the platform will be providing the capability to host large-scale conferences for businesses. Niknam was also enthusiastic about the upscaling of Zoom’s international business, as that market comprised 31% of total revenue in FY21.
Furthermore, Niknam wrote that the introduction of Zoom Phone could have significant upsell growth opportunities, particularly in regards to small to medium-sized businesses.
However, he did note that Zoom currently has “one of the biggest bear narratives on shares,” as the stock has been trading at about 21x its enterprise value-to-sales (EV/Sales), albeit lower than its one-year average EV/Sales multiple of 29x. Niknam wrote that Zoom’s FY22 guidance contains a “higher degree of caution,” and that the number of users leaving Zoom’s platform as a result of the end of the pandemic can and will cause a notable amount of decelerating growth.
On TipRanks, Zoom has a Hold average analyst consensus rating based on 6 Buys, 11 Holds, and 2 Sells. The stock has an average analyst price target of $410.69, reflecting approximately 24% upside potential over the next 12 months.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
