After a series of pandemic-driven blowout earnings, it was always going to be a tough job for Zoom (ZM) to keep up the momentum in a post-lockdown era. While the company’s June quarter results were once again excellent, beating the estimates on both the top-and bottom-line, the outlook failed to impress investors, who sent shares down ~17% in the subsequent session.
For Q3, Zoom anticipates generating revenue between $1.015 billion and $1.02 billion, roughly in line with the Street’s $1.01 billion revenue estimate. The company is calling for adjusted EPS in the $1.07 to $1.08 range, lower than the consensus estimate of $1.09 a share.
The forecast might have been a letdown for some, but RBC’s Rishi Jaluria believes ZM stock is still a long-term winner.
“Management’s guidance, which looks conservative to us, assumes headwinds from SMBs/consumers post-pandemic,” the 5-star analyst said. “It may take a few quarters for the headwinds to abate and for Zoom to return to its true underlying growth rate.”
Zoom’s large exposure to SMBs (small and midsize businesses) has been called into question, but Jaluria believes there is enough to suggest there is “long-term potential for Zoom to become a broader platform.” The pending acquisition of Five9 should help accelerate this process, and the analyst notes the commentary made around Zoom Phone and large customers is particularly encouraging.
Zoom Phone “continues to gain impressive traction.” 1 million “paid seats” were added in the last 8 months, with total customers now over 2 million. Impressively, notes Jaluria, customers spending more than $100,000 in ARR on Zoom Phone increased by 241% year-over-year.
And although customer adds were back to pre-pandemic levels, large customer “momentum continued,” with a 131% increase in $100,000+ customers and a 77% uptick in $1 million+ customers. Management was keen to stress the particular strength in the enterprise customer segment (direct and partner channel customers) which grew twice as fast as online customers.
While investors were unimpressed, in time-honored Wall Street fashion, Jaluria recommends investors “use the pullback as a buying opportunity.” In fact, Jaluria considers Zoom a “top pick” and sticks to an Outperform (i.e. Buy) rating backed by a $450 price target. Shares could appreciate ~55%, should the analyst’s thesis play out in the coming months. (To watch Jaluria’s track record, click here)
Not all on the Street are quite as effusive. ZM stock’s Moderate Buy consensus rating is based on an almost even 11 Buys and 10 Holds. However, the average price target remains a decent one; at $424.25, the figure is set to generate returns of ~35% over the next 12 months. (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.
