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Zoom Video Communications Inc. continues to get a huge boost from work-from-home trends, and that’s helped the company easily pass the $100 billion valuation threshold in Tuesday’s trading.
Shares of Zoom ZM, +36.30% have rocketed 38% thus far in Tuesday’s session, which would equate to a valuation of $126 billion if the gains hold through the close. Zoom’s rally comes as the company reported fiscal second-quarter results showing that it generated as much revenue in May, June, and July as it did during the entirety of 2019.
The stock is on pace for its largest single-day percentage gain on record. Zoom’s momentum is helping to lift shares of other remote-work names, including DocuSign Inc. DOCU, +17.36% and Slack Technologies Inc. WORK, +4.52%
Analysts had high praise for the latest numbers, with JPMorgan’s Sterling Auty cheering the “truly impressive and in some ways unprecedented quarter” and FBN Securities analyst Shebly Seyrafi discussing Zoom’s “truly explosive growth.”
Seyrafi called Zoom “the pre-eminent financial beneficiary of the COVID-19 crisis” and said he saw room for upside to fiscal third-quarter and full-year estimates.
“For example, the company is guiding for revenue growth of ~3% quarter over quarter in the current FQ3 quarter, but we estimate that the average number of customers with more than 10 employees will grow by 18% Q/Q,” he wrote. “If we assume that revenue from customers with 10 or fewer employees grows by 5% Q/Q and if we model that the number of customers with more than 10 employees grows by 2% Q/Q, then in order to fit guidance, average revenue per user for customers with more than 10 employees will need to fall by 13% Q/Q.”
That decline seems unlikely in his view considering that Zoom’s average revenue per user for this base of customers hasn’t typically declined in the fiscal third quarter, in Seyrafi’s view. “Therefore, if prior ARPU trends persist, then there may be 15% of revenue upside relative to our model, which uses company guidance,” he concluded.
Seyrafi has an outperform rating on the stock and he boosted his price target to $525 from $250.
The July numbers left Bank of America’s Nikolay Beliov feeling upbeat about the long-term potential for Zoom’s business, even after the pandemic subsides.
“The results confirm our view that Zoom is both a ‘vaccine’ and ‘vitamin’…as COVID-19 has permanently shifted the world to a hybrid-work environment and clearly elevated the awareness of cloud communications and videoconferencing,” he wrote. “This gives us confidence that these results are not just a pull forward of business, but are durable and sustainable trends.”
Beliov has a buy rating on the stock and raised his price objective to $475 from $260.
Needham’s Richard Valera argued that the company has an opportunity to double its revenue once again over the next three to four years.
“While Zoom’s massive user growth has skewed its base toward the higher churn <10 user cohort, which will drive higher than historical churn, we see this as more than offset by the increased opportunity from both an enduring secular shift toward remote work, and a larger installed base to cross-sell Phone, Rooms and future products into,” he wrote, while reiterating a buy rating and upping his price target to $440 from $230.
JPMorgan’s Auty said that other metrics beyond Zoom’s 355% revenue growth were notable as well. “It is the 41.7% operating margins and $373.4 million in quarterly free cash flow that stand out to us, especially when we consider the magnitude of the customers that are paying monthly and not annual in advance like some software companies rely on.” He maintained an overweight rating and boosted his price target to $425 from $220.
At least 13 analysts hiked their targets after the report, according to FactSet. Of the 32 analysts tracked by the service who cover Zoom, 15 have buy ratings, 14 have hold ratings, and three have sell ratings. The average target now stands at $372.09. Zoom shares recently changed hands above $445.
The stock has added about 600% so far this year as the S&P 500 SPX, +0.25% has rallied 8.6%.
