Zoom (ZM) came of age in the pandemic, and possibly more than any other company, made a permanent imprint on the public’s consciousness. But how is the video communication platform meant to replicate the success in the post-pandemic environment? Well, in short, it can’t. The outsized growth was not sustainable and while the company’s F2Q22 results were very good, its warnings of the impending slowdown in growth put the stock under pressure. Since the July quarter’s print, shares have retreated 31%.
So, heading into today’s FQ3 results, what will it take for investors to regain confidence?
Barclays’ Ryan MacWilliams thinks ~4% seqeuntial revenue growth – i.e., revenue of roughly $1.065 billion – is the “bogey” number investors will be looking for. “This implies ~$44 million in sequential revenue added,” the analyst explained, “And we believe a print of this nature would help ease concerns of accelerating SMB churn if there is positive seqeuntial contribution from the ‘customers with 10 employees’ cohort through FY23.”
For MacWilliams to become “more constructive” on the shares, the analyst would like to be able to forecast an average of an extra “~$50 million in quarterly sequential revenue from the customers with over 10 employees’ group through FY23. Given the addition of ~$50 million in quarterly revenues would suggest ~30% year-over-year growth for the segment, MacWilliams thinks it would “help investors re-focus on Zoom’s upmarket opportunity.”
MacWilliams appreciates the work done at Zoom over the past 18 months, as the company has simultaneously put together “channel partnerships, global service coverage, and international distribution.” Furthermore, the share price decline has made the valuation “more reasonable.” In fact, in the race to sign up “wall-to-wall large enterprise communications (cloud video/phone/chat),” MacWilliams believes Zoom is Microsoft’s “most significant competitor.”
However, the analyst believes the stock’s trajectory will be determined by the growth outlook, and until there is “more certainty on forecasting mid-market/enterprise growth,” the Barclays analyst stays on the sidelines with an Equal Weight (i.e., Hold) rating. Meanwhile, the analyst gives the stock a $270 price target, which implies ~10% upside from current levels. (To watch MacWilliams’ track record, click here)
Plenty of analysts are thinking along the same lines, but they are just about outgunned by the bulls; with 9 additional Holds and an extra 12 Buys, ZM stock has a Moderate Buy consensus rating. The forecast calls for one-year gains of ~41%, considering the average price target stands at $336.64. (See Zoom stock analysis on TipRanks)
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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.