Zoom’s (ZM) ascent has grabbed many headlines over the past year. The company’s rise from obscurity to a household name is entirely down to the pandemic’s impact.
At the same time, Zoom has delivered a series of blowout earnings, which in 2020 went hand in hand with outsized share gains. However, as has befallen many growth stocks in 2021, the reopening and Covid-19’s retreat has seen a shift in sentiment. Questions have come to the fore whether Zoom’s fortunes are set to decline as the need for its core video conferencing service becomes less acute.
Heading into today’s F1Q22 earnings after the close, RBC’s Matthew Hedberg thinks investors need not worry. The 5-star analyst believes the signs are there for Zoom to deliver another strong set of results.
“Our deep-dive into 3rd party data suggests a beat vs. guidance that will be slightly larger than F4Q’s 9%, and points to improving trends over the course of the year so far that likely set up continued strong performances going forward,” Hedberg said.
The analyst thinks 10% upside to the $905.5 million of revenue Zoom has guided for is “likely.” This suggests revenue of $991 million, amounting to a 202% year-over-year uptick.
For FY22, Zoom currently expects revenue to increase by 42% year-over-year to between $3.76 and 3.78 billion. Hedberg notes that 5 out of 5 times, Zoom has “increased annual guidance by more than the quarterly beat, from 180% to 685% of it.”
This means that if Zoom delivers revenue of $991 million, it should guide for FY22 revenue to increase to between ~$3.95 and 4.00 billion, amounting to growth of ~49%.
And while data cruncher Sensor Tower’s download and usage trends “show moderation,” they are still far higher than pre-COVID levels. Since their April 2020 peak, downloads “continue to trend downwards,” dropping month-over-month in 8 out of the next 12 months, but nevertheless still staying 11.4x above the January 2020 level.
Additionally, the margin for error remains wide. To reach the F1Q guidance, Hedberg estimates revenue per download would only need to hit $0.11. “The lowest number on record is $0.58,” Hedberg said, “And the average over FY21 was $0.97.”
To this end, the analyst sticks to an Outperform (i.e., Buy) rating although due to “lower comp group multiples,” the price target is slashed from $550 to $480. Still, the upside potential here comes in at 45%. (To watch Hedberg’s track record, click here)
According to the rest of the Street, the forecast is for one-year returns of 25.5%, given the average price target stands at $411.40. Rating wise, the fence sitters are most vocal; the stock has a Hold consensus rating, based on 10 Holds, 6 Buys and 2 Sells. (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.
