By Ciara Linnane, MarketWatch
Zoom Video Communications Inc.‘s shares reversed early losses to gain more than 9% Thursday, as analysts welcomed better-than-expected fourth-quarter earnings and forecast that the coronavirus will drive demand for the company’s remote-work tools.
Zoom /zigman2/quotes/211319643/composite ZM -1.31% , which offers teleconferencing services including video meetings, voice, webinars and chat across desktops and mobile devices, has seen its stock soar 47% in a month as the coronavirus has spread and more companies direct employees to work from home.
The virus has now sickened more than 95,000 people and caused more than 3,200 deaths with China still accounting for the bulk of cases and deaths.
“The global coronavirus epidemic will undoubtedly drive awareness and adoption of the company’s video conferencing platform, and we expect this environment to further enable the company to post industry-leading growth rates,” Stifel analysts led by Tom Roderick wrote in a note to clients.
However, “despite all of this, the valuation of the stock remains in nosebleed territory and keeps us on the sideline with a hold rating,” said the note.
For daily coverage, see: Coronavirus update: 95,748 cases, 3,286 deaths, airline stocks tumble
JPMorgan said that while the virus is driving use of Zoom’s products, much of the increased uptake is of the company’s free app and it remains unclear whether those users can be converted to paying ones. Chief Executive Eric Yuan said in a video webinar posted after the results that he expects the virus’s impact to be more than temporary, but he conceded that it’s too early to gauge its financial impact.
JPMorgan praised the company for eliminating time caps on its free app for users in Asia to better help them cope with the effects of the virus, and said it makes strategic sense. “Ultimately, getting more people to try the solution we believe will lead to even better long-term market penetration,” analysts led by Sterling Auty wrote in a note.
JPMorgan reiterated its overweight rating on the stock and raised its price target to $150 from $125, equal to 27% above its current price.
Zoom reported net income of $15.3 million, or 5 cents a share, for the quarter, compared with net income of $1.2 million, or 1 cent a share, in the year-ago fourth quarter. Adjusted per-share earnings came to 15 cents, ahead of the 7 cents FactSet consensus.
Revenue soared 78% to $188.3 million from $105.8 million a year ago. Sales for all of 2019 came to $622.7 million, up 88% year-over-year. Analysts surveyed by FactSet had expected sales of $176.5 million.
“It was a strong finish to our fiscal year,” CEO Yuan said in the webinar following the quarterly results. He pointed to 81,900 customers with at least 10 employees, a 61% improvement from the same quarter a year ago. VMware Inc. /zigman2/quotes/209864107/composite VMW +1.14% and Johnson & Johnson /zigman2/quotes/201724570/composite JNJ +0.39% are among Zoom’s larger customers, he said.
Zoom offered first-quarter revenue guidance of between $199 million and $201 million, exceeding FactSet’s projection of $185.6 million. For fiscal 2021, Zoom expects between $905 million and $915 million, topping the $869.5 million forecast by FactSet.
JPMorgan’s Auty said Zoom Phone adoption could be another growth driver. The service has attracted more than 2,900 customers with more than 10 employees in its first year after launch and will shortly be available in 18 countries. Operating margins of 20.4% were also significantly above Street consensus of 10%, he said.
KeyBanc analysts said the company’s execution was strong, but agreed with Stifel that its valuation is looking stretched at an estimated 28 times estimated 2021 enterprise value to revenue. KeyBanc is sticking with its sector weight rating on the stock.
Zoom shares are up 86% in the year so far, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +2.62% has fallen 5% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +3.15% has fallen 7%.