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Can Zoom Keep the Rally Alive? Five-Star Analyst Weighs In
Stock Analysis & Ideas

Can Zoom Keep the Rally Alive? Five-Star Analyst Weighs In

Zooming to new highs in 2020, Zoom’s (ZM) ascent has been nothing short of remarkable. Up 291% since the turn of the year, the company has flourished in the stay-at-home climate. That said, given this impressive run-up, can ZM continue its charge forward or have shares surged enough for now?

RBC Capital’s Alex Zukin says the video conferencing company still has plenty of room to grow. Ahead of ZM’s fiscal Q2 2021 earnings release, the five-star analyst notes that “While most investors are fearful of looking at names trading at 25x CY22E revenue, we remain very bullish on ZM and believe that this quarter once again has the potential to deliver much better than expected revenue upside vs. consensus expectations.”

Based on Zukin’s models, the company could report revenue of between $579-$595 million, which would come in 16% higher than the Street’s $498 million call. “While the biggest unanswered question will remain how the company will comp the current staggering growth rates in the out year, we think the near-term catalyst will mostly be driven by how much higher numbers go. We move our base case estimates up for the quarter and the year to $520 million (257%-plus year-over-year) & $1.842 billion (196%-plus year-over-year), respectively, both of which are street high,” he commented.

Looking at download and MAU metrics provided by SensorTower, there has been some moderation from April peaks. The figures, however, are still well above pre-pandemic levels.

Even though app downloads have taken a substantial fall, Zukin points out that the drop in MAU hasn’t been as severe. App downloads peaked in April at 144 million, then declined sequentially by 39%, 19% and 34% in the May/June/July periods. MAUs are down roughly 20% in July from April highs.

Breaking down the ZM model based on app download activity at a monthly level, Zukin believes there could be significant upside in store. “We believe looking at monthly trends shows that ZM likely ended fiscal Q1 2021 with a base of ARR $1.861 billion which combined with strong download activity supports material upside to the current quarter, even in a scenario where churn from monthly cohorts remains above historical averages (an assumption embedded in guidance). Our new model gives investors the ability to flex both monthly churn assumptions as well as download and ARPU figures to paint a long-term growth picture,” Zukin explained.

Based on all of the above, Zukin has high hopes for ZM. To this end, he left his Outperform rating unchanged. In addition, he gave the price target a $50 lift, with it now landing at $300. Should his thesis play out, a potential twelve-month gain of 13% could be in the cards. (To watch Zukin’s track record, click here)  

Turning now to the rest of the Street, 12 Buys, 8 Holds and 2 Sells have been received in the last three months. So, the word on the Street is that ZM is a Moderate Buy. However, at $232.61, the average price target indicates 15% downside potential. (See Zoom stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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